Every parent would like to see their children be successful and live a happy life when they grow up. You want to provide them the best education and encourage them to excel academically so that when they finish their education and are ready to work, they can earn high salaries and eventually become wealthy.
To some parents who are in business, they want to groom their children for success someday and make them future COOs (Child Of the Owner) who will grow and keep their business for the generations to come.
These are ideal situations every parent dreams of. But the reality is not everyone succeeds financially. There are people who do well academically. They graduate with honors from high school and college but they end up struggling financially despite their high-paying jobs because they hardly have any savings or they carry too much credit card debts.
There are also COOs who fail their family business because they mismanage the money they inherited from their parents. Do you find these stories familiar?
Many of these people learn their money lessons the hard way. It is not having lots of money, but rather the ability to manage money well that guarantees you financial success.
As a parent, you want to teach your child how to handle money early so she can practice the discipline of money management skills early on until it becomes a permanent habit as she grows up.
Children who know how to save and spend money are more likely to acquire good money sense and develop confidence in decision-making. When they become adults, they will have the advantage of handling more difficult tasks such as planning for investments, retirement, taxation and others.
When you do decide to teach them financial lessons, try to make the learning experience positive so your kids will be encouraged to learn more. Here are the five ways you can teach your children about money.
1. Teach by setting a good example
Evaluate your attitude on handling money. Do you budget your spending regularly? Is money a frequent source of conflict with your spouse? Do you pay your credit card debt on time?
What your child sees and hears from your experiences influences their values and beliefs toward money. If you think you need to have a good understanding of personal finance matters such as budgeting, investing or savings, then it would be wise to educate yourself first and practice what you preach.
2. Teach by differentiating needs and wants
Involve your child in family budgeting. You can make your child understand how you are spending your income and what you are saving for.
By understanding budgeting, she will learn how to differentiate between needs and wants and it would be less likely for her to make unreasonable demands to buy things she doesn’t need. As she grows up, the values she learns from the family discussions will prepare her to make good budgeting decisions.
3. Teach by planning to achieve goals
Discuss your short-term and long-term financial goals for your child. You can make him responsible by agreeing with him to achieve certain goals for a prize.
For example, you can say that you would give your child a certain amount of money as prize, which she can use to buy a toy or anything equivalent in amount if she can finish this school year on the honor roll. She can then learn the value of earning the prize by working towards achieving the goal.
4. Teach by encouraging to make correct choices
Give your child opportunities to make decisions about money. When making decisions, she will learn how to prioritize and make the right choices.
Make your child understand that once a choice is made to purchase a particular item, the same money cannot be spent on another option anymore. The item given up in order to acquire the preferred item is called the opportunity cost.
Of course, children can make poor choices. It is your responsibility as a parent to guide and provide encouragement. Emphasize that when your child makes a decision, it should be based on her values and goals.
5. Teach by providing hands-on experience
Develop your child’s buying skills by comparison shopping. For example, you can bring your child to the grocery and explain to her why you choose one item over the other by citing the price and quality differences.
You can let your child experience shopping by giving her a budget, say Php100, and let her choose any item at that price or below. Once she has already chosen one, ask her to explain why she chose it. In this way, your child will learn to make the right purchasing decision.
Being a good parent involves providing your children all the tools they need to become successful and happy adults in the future. One important skill that they should not miss out on learning is about money.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice firstname.lastname@example.org or follow him on Twitter @henryong888