What our kids think about money:
When I said we didn’t have enough money to buy a toy that he wanted, my 3-year-old suggested I go to the bank and withdraw more money.
When my 5-year-old took loose change from the table-top to buy a can of soft drink, he said the money was his because he “found it”.
My 7-year-old asked why the government won’t simply print more money. Well, isn’t it a bit early for a lesson in Economics, son?
Why Kids Need To Know Real Lessons About Money:
- Set expectations. When they know where money comes from, they stop expecting you to buy everything at their request.
- Clear understanding leads to better cooperation. At least the kids will be on the same page as you when it comes to money, how it’s earned and how it should be managed.
- The earlier they start, the earlier their finances are safe. When they know how to earn, manage and multiply their money, it gets easier with time.
- Habit starts now. We instil the habit of brushing teeth in our kids because we know dental health is important for them. The same goes for money. How they view and spend money now will most likely influence how they view and spend money when they’re grown ups.
What Kids Need to Know About Money
1. Goods and Services Cost Money
When my eldest son was 6 years old, he asked me why we needed money to “buy” things. It was questionable to him that we can’t just take whatever we want without having to pay for it. So that’s when our lessons about money started. Below is how I answered my son’s question:
Why we pay using money
At the very beginning, people exchanged goods e.g. a farmer with an orange plantation can exchange 5 oranges for 5 apples with a farmer with an apple orchard. But what if the apple farmer doesn’t want oranges but bananas instead? It was going to be too cumbersome for the orange farmer to exchange his orange for bananas then exchange those bananas for the apples he want. That is why people came up with something they agreed could be used to exchange for any good they want. That’s how money was created.
Some things are affordable, while some are not.
In our house, our children learn, from a very young age of 3 years old, that we need to pay for the things that we want to own and activities that we want do. My current 3-year-old always ask “Mummy, what’s the price of this [item]?” and when I tell him the price, it will always be followed by this question “Is it expensive or cheap?”. Oh my dear Louis. You’ve learnt before turning 4 that we need to consider the cost of the things we want to buy. We’re so proud of you baby!
2. Money is Earned
The number one thing our kids thank their father for is “for going to work to earn money so we can buy food and the things we need”. It appears in their birthday cards for their daddy, father’s day cards and even a random thank you card. I suppose we have done a pretty good job in teaching them that money needs to be earned, in exchange for time and skill, that money does not simply come unlimited. This is so important because they need to know that they will have to earn their own money when they grow up, instead of expecting to have it handed to them.
3. They Need to Make Choices (Opportunity Costs)
My husband is good at this one. He often compares the price of a toy to that of one McDonald’s $1 ice-cream cone. When we bought a pair of shoes that cost $50 for one of the boys, my husband told them that the same amount of money could have been used to buy 50 ice-cream cones! This type of comparison comes up often in our day-to-day life so the kids understand that in every choice that we make, we forego something else that we could have otherwise gotten.
Other times we present a problem for them e.g. With $X they can either buy 1 of item A or 3 of item B, which one would they prefer? This is a good way for the kids to process in their thoughts what exactly they value more. Is it having one of item A or more of item B?
When they’re given the chance to actively make choices about their purchase, they become conscious about the concept of money.
4. Money Needs to be Managed
There are 3 things that we need to do with the money that we have: Spend, Save and Invest. The earlier we make this concept known to children, the better they get at managing their money as they grow up.
So our eldest has been wanting an Xbox for over a year. It’s only now that we told him he will have to save $1 each day from his pocket money and buy the Xbox at the end of the year. We also asked our 5-year-old (turning 6 soon) to save $1 a day to pay for his new bicycle. The point is to teach them how to save & wait. Because that’s what must be done when they turn into adults. Can’t run away from that fact, might as well get them used to the harsh reality early!
Investing is something you can introduce to children older than 10 years old. It involves research, comparison, decision-making and waiting. Skills that need long term commitment and practice.
5. Money Can Be Given Without Getting Anything in Return
Lastly, we can show our kids that money can be donated for a good cause. It is not necessary to keep all the money we have to ourselves. If we have extra, it’s oddly satisfying to give to charity or a cause we believe in.