Parenting is a non-stop 24/7 job. As our children grow older, our job as parents changes from teaching them how to sit on a potty and clean themselves to teaching them how to handle chopsticks like a pro to making them aware of how to handle money. Financial literacy is now an essential life skill and one that needs to be taught early on. Research has shown that the quicker you teach your child how to handle money, the higher the chances of the child modeling fiscally responsible behavior in future.
Here are 7 reasons why you need to teach your child financial literacy:
1. Your child needs to understand the difference between wants and needs. This will help your child master budgeting and managing finances when they’re living independently. When children are younger, all their decisions are based on wants. I want that Happy Meal. I want that toy. But as they grow, it’s essential that the true needs such as groceries, utilities and others are given more importance than the wants of fancy sneakers and expensive jeans.
2. It would do your child good to comprehend how no matter how wealthy you are, money is finite. “Make them aware of trade-offs as soon as possible,” says Peter Nigro, who is chair of the finance department at Bryant University.
3. The problems with poor purchases. It is imperative for children to understand how making money mistakes, poor purchases or not thinking through a budget can harm them. Allow your children to make mistakes (such as spending their entire allowance in one day) and don’t rectify their mistakes for them. When they suffer a little, they will understand what being financially irresponsible can lead to.
4. Teach your children how to save. The habit of saving up for something they really want or even just saving up for a rainy day is one that should be ingrained in children from an early age. A reloadable debit card is a good way of teaching a child how to save if he or she can be trained to leave some amount on the card at the end of every week. Children who learn to save well tend to continue to save well in their adult lives.
5. Introducing children to the relationship between time and money. Oftentimes money can only grow and enhance with time if invested wisely. While children should not be encouraged to invest until they are adults, it is a good time to start talking to them about secure and risky investments. Children who have grown up discussing investments with their parents around the dinner table will be less likely to fall victim to get rich quick schemes.
6. Diversification is key. In today’s unstable global economy under Covid-19, one of the key lessons to take home is how important diversification is. Only investors who had varied and diversified investment interests did well while some of those who had put their entire holdings in one industry suffered greatly. Start talking to them about how the more diverse your holdings, the better the chances of you staying safe.
7. Money does not grow on trees. This age old adage has been repeated to every child since eternity. The best way to teach children the value of money is to make them earn an allowance by doing odd chores or a part time job. Nothing teaches the value of money as well as having to work for it.
The SpendSafe platform and reloadable debit card for kids is designed with a learning trajectory for children. We hope our experience helps your child (and maybe you!) learn valuable life lessons, just like STEM toys do.