While the topic of personal finance may seem too complex for children, there are some simple lessons that can help them establish a healthy perspective on money.
Prioritizing Needs Over Wants
The first step a child takes in learning how to deal with money also applies to managing priorities in general. While it usually takes time, it's possible to help children distinguish between things that are simply fun - "wants" - and those that are necessary for another purpose - "needs".
When you have free time together, ask your toddler to name some activities and objects that make her feel happiest. Compare those things to less exciting things such as going to bed or eating vegetables. Explain why it's better for her to take care of those chores before having fun. You might wrap up the conversation by making up a regular to-do list together, placing the wants after the needs as a reward.
As your child grows older, consider providing him a regular allowance. You should provide a modest amount that lets your child practice using the allowance to obtain things he wants by controlling his spending over time and saving up for larger purchases. Enforce this habit by limiting the "wants" you buy him with money outside of the allowance. Above all, keep talking to your child about how to distinguish things that he "needs" from those he simply wants.
Another crucial money skill is how to make sure you're spending it effectively. In early years, your children can learn by tagging along with you to the store. Since participation is key to learning, ask them to help choose between two brands offering the same product. What makes one better than the other? If one option is more expensive, are there good reasons to pay more for it?
As your child develops, the conversations will get more detailed and complex. If you manage to establish shopping together as a regular practice, it should be that much easier for your child to carry out the same process independently. You may find it even more helpful if you can challenge them to apply their comparison skills to questions that affect them personally, such as allocating their limited allowance to pay for competing wants.
Saving and Tracking Spending
Children sometimes find that money comes to them all on its own, whether in the form of red envelopes at the New Year or from birthday presents. While the ongoing digitization of finance has made things convenient for adults, gifts of physical currency still offer some teaching value. Seeing and counting the money piled up in a piggy bank offers a simple introduction for youngsters to the concept of saving over time.
Once your child is mature enough to understand the basics of how banks work, it's time to move the funds from a piggy bank to a savings account. It's easy to find banks that have built digital platforms that show your account activity in a quick and clear way. Setting one up for your child will give them a head start in tracking their balance, and empowers you to ask them how they've been managing money recently or how much they have now.
Knowing How Time Relates to Money
The worn-out saying "time is money" isn't as obvious to a child, which makes it important to explain it simply yet effectively. At an early age, start off with the idea that time is something that can be bought and sold - for instance, in the form of jobs. Explain your own job as an exchange of your time for money. Point out how your family pays for the time of other people such as domestic helpers and tutors.
When your child is in secondary school, it's probably a good time to talk about how money can be affected by the passage of time. It's a daunting task to talk about loans and investment to your child, but the best practice is once again to include them in conversations about how those financial products function in your own life. How do people buy incredibly expensive things like cars and homes? Why does the price of petrol change all the time?
If your child is showing enthusiasm and responsibility, you may even consider getting them a student credit card for first-hand experience. Paired with an allowance and a bank account, the card can serve as your child's tool for managing spending responsibly - or for discovering the pain of loan interest if they happen to rack up more spending than they can pay off in a month. Allowing this to happen in a controlled environment is better than leaving your child to figure it all out on their own as a young adult.