What should your children know about money?

Financial literacy entails understanding and grasping the concepts and competencies required to make well-informed choices regarding money matters. Educating children about money empowers them with the wisdom to manage their finances responsibly, sidestep debt, and make prudent financial judgments as they mature.

By instilling principles such as savings, budgeting, and sensible spending, children cultivate a sense of financial accountability and autonomy.

1. Discerning between needs and wants

Children often encounter difficulties discerning between their necessities and desires. Early education in distinguishing the two enables them to prioritize spending and make thoughtful choices regarding their expenditures. By helping them understand basic needs such as sustenance, clothing, and shelter versus wants like toys or entertainment, children can learn to make choices that align with their priorities and principles.

By involving them in decision-making and motivating them to monitor their expenses, children gain a tangible comprehension of budgeting and the significance of planning their financial resources.

2. Nurturing entrepreneurial spirit

Instilling an entrepreneurial spirit in children offers a practical approach to teaching them about earning money and taking initiative. Encourage them to explore their passions and aptitudes, guiding them in establishing minor enterprises like baking and crafting ventures.

Assigning age-appropriate household responsibilities and giving reasonable allowances helps children understand the connection between labour and earnings. Earning money through chores teaches them the significance of responsibility, self-discipline, and the rewards that accompany diligence.

It is also good to introduce the concept of tax, by deducting a small amount from whatever you pay them for the chores.

Also read: What I wish my parents taught me about money

3. Formulating savings goals

Help children establish savings objectives to underscore the significance of saving for the future. Whether the goal involves purchasing a new plaything or striving for a long-term aspiration like higher education, a savings target fosters discipline and deferred gratification.

Familiarise children with the concept of initiating a savings account. Accompany them to a bank and elucidate the workings of an account, including the notion of accruing interest. Facilitate their understanding of the benefits of safekeeping their money and how it can appreciate over time.

4. Exercising delayed gratification

Assist them in comprehending that postponing gratification and saving for something they genuinely desire can yield more satisfaction than impulsive purchases.

Inculcate in children the prowess of being discerning consumers. Urge them to contrast prices, peruse reviews, and contemplate the value and quality of a product prior to making a purchase. By nurturing critical thinking abilities, children can grasp the art of making informed choices and sidestepping wasteful or impulsive spending.

5. Introduction to borrowing

As children mature, it becomes imperative to introduce them to the concepts of borrowing and debt. Elaborate on the fact that borrowing entails acquiring a loan that necessitates repayment, often accompanied by interest. Engage them in discussions regarding responsible borrowing practices and the consequences of excessive indebtedness.

Educate children about the judicious utilisation of credit as they approach their teenage years. Illuminate the significance of maintaining a positive credit history and the potential ramifications it holds for their financial future.

6. Introducing retirement savings

Although retirement might seem distant to children, educating them early about retirement savings imparts a robust sense of financial responsibility. Expound upon various retirement savings mechanisms and underscore the significance of consistent contributions to these accounts over time. Encourage them to ponder their extended financial goals and the lifestyle they envision during their retirement years.

7. Clarify investment alternatives

As children transition into their teenage years, initiate them into the principles of investing. Expound upon diverse investment options like stocks, bonds, or mutual funds, shedding light on the potential risks and rewards attached to each. Emphasize the indispensability of diversification and seeking professional counsel when making investment determinations.

Also read: How to teach your children about money

8. Navigating the digital sphere: online money management

In today's digital age, it is pivotal to acquaint children with the intricacies of online banking and financial administration. Initiate them into the basics of online banking, encompassing account access, transaction scrutiny, and online payment processing. Elucidate the significance of upholding secure passwords and implementing robust online security measures.

Familiarise children with diverse digital payment avenues, including mobile wallets and online payment platforms such as M-Pesa or PayPal.

9. Upholding cyber security

In the digital milieu, it is imperative to educate children about cyber security and the potential hazards associated with divulging personal information online. Emphasize the gravity of crafting potent passwords, exercising caution against phishing attempts, and safeguarding their financial accounts. Motivate them to promptly report any suspicious activities and seek assistance from a reliable adult should they encounter online security concerns.

10. Leading through example

Parents should showcase responsible fiscal practices such as budgeting, saving, and making judicious spending choices. Engage children in familial financial dialogues to grant them insight into real-world financial scenarios and the decision-making process.

Champion the inclusion of financial education in school curricula. Advocate for the provision of programs or courses that educate children about money management, budgeting, and fundamental financial concepts.

There is a plethora of resources available for nurturing children's financial acumen, including books, online courses, games, and interactive websites. Leverage materials and activities suitable for their respective age groups to ensure that the process of learning about finances remains engaging and relatable.

James Ngane is a financial consultant at Cymes Consultants