How young is too young to learn about money? The answer to that question— it is never too early to teach your children about money. At every stage of their childhood and adolescence, you can use a different medium or technique to teach your children financial lessons.
The personal financial lessons you teach your children in their childhood will lay the foundation for their money habits throughout their lives. However, the critical question— is which lesson to teach at what age? While teaching a five-year-old child about different personal wealth management options would be a difficult thing to pull off, you could teach the same to a teenager with little effort.
Wondering if you have to create a detailed lesson plan on personal finance and how to make your children understand it? We bring you a comprehensive finance lesson plan for your children. All you need to do is follow the suit.
Here we go:
Children from ages 3 to 5:
You do not need to sit with your children specifically to teach them about money and spending habits. You can instil critical lessons about personal finance through everyday practices. Remember that your children pick up a lot of their habits from observing your behaviour. Hence, primarily, you need to inculcate and practice all the lessons you teach your children.
What can you teach?
At the age of 3 to 5, you may not be able to teach complex financial concepts to the children, but you can form their purchasing patterns. Waiting to buy something you want—-an idea that is difficult for even adults to follow— can be introduced to children from a young age.
How to teach it?
- Impulsive shopping is one of the root causes of bad financial management. To curb this problem even before it starts, encourage your children to wait at least one day before buying anything they want to get. The product will most probably be there even after 24 afters.
- Also, you ask them to save their pocket money for something they wanted you to buy. This practice not only makes them understand the importance of hard-earned money but also infuses the habit of saving early on in life.
- To streamline the savings activity further, you can assign three clear jars to your child allocating three different purposes— one for saving, one for spending, and one for sharing. This activity, in its little way, teaches income allocation and the importance of giving to society.
Children from ages 6 to 10:
What can you teach?
While you continue with your three jars, you need to separate your financial lessons once your children reach the age of 6. Apart from saving and waiting to buy something they want, it would be best if you also inculcated the habit of making the right choices to spend their money and start involving them in your financial decisions.
How to teach it?
- As already mentioned, children follow and emulate your money management practices. Hence, you need to practice what you preach. To make them understand the importance of choices and the limitations of the available resources, start making them a part of your financial decision-making process. Therefore, they can learn from your experience.
- To further enhance their decision-making skills, ask them to make choices with a confined budget. For instance, you can give a strict budget and ask them to prioritize and buy the things they need on your next trip to the grocery store. Initially, they might make the wrong choices and end up buying things they do not need. However, it teaches them an essential lesson in prioritizing their needs over wants in light of limited resources.
Children from ages 11 to 13:
What can you teach?
At this age, you can introduce more mature subjects to your children. By now, they have already learned to save for the short term. Hence, you should now get them acquainted with the concept of compound interest and long-term savings. The sooner you start saving, the better your long-term results would be.
How to teach it?
- Teach your children about the subject of compound interest and how to calculate it. Help him or her by giving a few numbers and scenarios to compute the compound interest in the long term
- Give them access to online investment calculators to plan their savings efficiently and accurately
- Step up their savings lessons by adding more serious savings and investment goals other than saving for their toys. Include more expensive items they can save for and how they can earn compound interest on their savings
Children from ages 14 to18:
By this age, you need to start planning for your children’s educational expenditures. The tuition would highly depend on the college and the type of degree you would choose. Developing a financial plan for your children’s college would be primarily based on your awareness of average tuition fees for the college.
How to teach it?
- Include your child in the college discussions to let them know— how much it costs and how much you can contribute. Student loans generally make up for a substantial portion of the costs. Considering your child would have to repay the student loan after the completion of his/her education, it is of paramount importance that you make them cognizant of it.
- Apart from the tuition fees, a college education would also involve accommodation and living expenses, which would be borne by your child. Most college students take up jobs to finance their living expenses. Hence, help your child to calculate the average living expenses one would need to survive through the college years comfortably. This exercise will prepare your children better for college life and the financial challenges that come with it.
- Talking to your children about the different financial aid options early on will help them gain an edge over others as it helps them be prepared for it.
Children (or adults?!) aged 18 and above;
What can you teach?
Now that your child is all on himself or herself, it is time to impart the knowledge about how to use a credit card. Use the credit card only if you can pay it in full each month. If misused, credit cards can hamper your children’s credit history, which would impact his/her financial future.
How to teach it?
- Make sure your child knows that if you cosign on a credit card, non-payment of the dues will impact not only your children’s credit history but also your credit track record.
- Identify the best credit card that charges fewer interest rates and suits the needs of your child. Assist your child in sketching out a plan to pay off the dues every month. If dues are not paid on time, it will make getting a car or home loan difficult for your child.
- At this point, your child is stepping out into the real world and would be entirely in charge of his/her financial decisions. Hence, make sure you give them enough guidance, which could be in terms of personal coaching, self-help books, or long-term financial plans.
To reiterate, before you teach the aforementioned lessons to your children, ensure you practice them in your life. They will eventually follow your example and look up to you for financial advice. While you teach your children about streamlining their finances and making the most of out it, safeguard their future with smart investment plans. Take your first step towards a prosperous financial future by taking a free portfolio analysis today.
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