How to talk to children about money
The earlier children learn financial literacy, the easier it will be for them in modern life. We talked to Alexandra Osmolovska-Suslina, head of the Fiscal Policy Department of the Economic Expert Group, about what principles should be laid down.
Children today are faced with money before their parents but have no idea how to deal with it. Adults do not always help: it is not customary to publicly discuss financial issues in some families. Because of this, children do not understand where the money comes from, how to manage it, and what to do to avoid falling into the trap of fraudsters.
This is not the fault of parents – often, they have low financial literacy. In a NAFI (National Agency for Financial Research) study, only 47% of Russians answered finances correctly.
Involve your child in the family budget
In another NAFI study, 73% of Russians do not involve children in managing the family budget. And that’s too bad: a child needs to understand where the money comes from, where it goes, and why there is always a limited amount of it. Make them know that the process of getting money is complicated and that it takes time and effort.
Use your example of how much money your family earns and what your monthly spending list consists of. Your child should observe the family budgeting process.
This will give them a clear picture of your finances and help you organize your spending and family economics. The child will get closer to their parents, understanding more about their lives. And they will imitate them and start to playfully keep a budget, which will come in handy in adulthood.
Teach your child to plan their expenses
Many parents refuse to shop for their children and don’t explain why. It is better not to do this: go back to the conversation about spending and once again remind your child that you can’t spend uncontrollably. It would help if you also considered that every family has a different income.
Start budgeting small, like a simple grocery list for a trip to the store. This will help not only to learn a new skill but also to avoid impulse purchases in general. The main thing is to convey to your child that there are mandatory expenses to cover the family’s primary needs; they should be prioritized over other minor purchases.
Planning can also be taught with a simple tool – pocket money. It can be given as early as preschool age. Children can get it in many ways – from summer jobs to rewards for good teaching. Pocket money and earmarked money (e.g., for lunches) should be separated – explain to the child that the latter can only be spent on what it is allocated for.
Spending money must be subject to some rules – lack of control will lead to a less responsible attitude. Try to have money come in regularly, not when it runs out: once a week or once a month, for example. This will teach your child to make decisions: what to buy now to save for the future.
Teach your child to save
Teach your child the importance of saving. For example, he wants a toy that you are not ready to buy him yet. Suggest that your child save, for instance, from his pocket money.
He will understand that he has savings that he can spend right now, but every unnecessary purchase will separate him from his dreams. This will help him learn how to prioritize.
Teach him how to handle debt
A child may borrow money from you or a friend. Teach your child the right way to treat debt: if he did borrow, he must pay it back on time. Tell them about how banks work and what happens if they don’t pay back what they owe. For example, you might have to pay the penalty for a day in arrears. Knowing about this will help protect your child in the future from loans with high-interest rates and the consequences of arrears on payments.
You need to understand that a loan is only required for emergency needs – they should not be taken out for any current needs. If an adult understands this and broadcasts his behavior to his child, he will grow up the same way. Tell them about the expression “you take someone else’s money for a while, give them yours forever” – it is sobering for adults and understandable even to the youngest child.
Teach your children how to use banking tools
Banking offers new tools for users, such as children’s cards. They make kids feel even more independent since they have a card just like an adult!
The benefits of such a card are many: from easy offline and online spending to more excellent protection from fraudsters. In addition, many banking applications include elements of gamification, and the child can learn the basics of financial literacy in the form of a game. But it is better to connect banking at an older age and start your child’s acquaintance with paper money rather than digital money.
So, here are some basic rules to help children become financially literate:
let your child be a full participant in the budget discussion process – talk about your sources of money and significant expenditures;
pocket money – the child’s first independent experience in managing finances. Try to give them out systematically;
Teach children to plan their finances – you can start with a list of what you want to buy at the store or during an outing.