Growing up, I remember how, with
N20 in hand, I would boldly march to the mallam/kiosk opposite our house or down the street to buy M&K or Gogo, groundnut & chewing gums and then answer the questions on the chewing gum wrapper. During my university days, I would go to the bank every week to withdraw cash for my weekly upkeep. Fast forward to 2019, I can go a whole weekend without more than N200 in my bag because my ATM card and mobile phone do all the needed transactions. Almost every store has a POS machine. Even if there isn’t one, I can easily do a transfer on my phone. In the nearest future, physical cash will completely lose its relevance, especially with the invention of digital currencies. It would be a costly mistake to leave our children in the dark on how to effectively handle and manage money. Never has there been a time when intentional parenting is needed than now.
Financial education for children is very important, we’ve gone past the days where we just buy piggy banks or at most open bank accounts for them. Being financially ignorant in this time and age can be very costly. It is more important to teach children about money management/financial literacy than to save or invest money for them.
Here are some simple ways of instilling money lessons in children at different stages of life:
For toddlers, you can start by helping them identify money and showing them money is valuable. Most of them already have an idea of what money is (my 2-year-old calls money ‘Naira’) you just need to be a little more precise.
You can start by helping them identify different Naira notes. Place Naira notes of different denominations on a table and help them identify each note. Using the colors of the notes makes it easier (so
N10 is red, N20 is green, etc). Help them understand the difference between money and paper by explaining to them that money is the only acceptable medium to getting their favorite ice-cream or biscuits.
You can take it a step further by giving them a certain amount of money and taking them to a nearby tuck shop. Tell your toddler (this will also work with 4-6-year-olds) to ask for the price of their favourite biscuit and then ask him or her how many of the biscuit they can get with the money they have on them, and if they want to use all of the money to buy biscuits or keep some. This will introduce them to money management and also kick start them on decision making.
You can help toddlers understand where the money comes from by explaining your job to them. Emphasize the fact that you work before you get paid, hence, work is very important. Let them understand that money is earned. You can take it a step further for older children by making them earn money. Paying them a little stipend for jobs you would ordinarily outsource is not a bad idea. For those in senior secondary schools, taking sales jobs during summer holidays would do a lot to broaden their minds and perspective on making money and earning a livelihood.
At this stage, it is important that children have an understanding of why they need to save. Adults on the journey to financial freedom know that a very strong “WHY” is necessary. So children need to understand too! This can easily be done by helping them set saving goals, these goals can be divided into short and long term goals. For example, Tolu wants a wristwatch by December and he also wants a pair of Nike sneakers that costs N50,000. You’ve promised him half of the money, so he’s looking to raise the other half. The wristwatch before Christmas is his short term goal, while the sneakers are his long term goal. Assist him in creating realistic steps to achieving these goals, like how much he’ll need to save weekly and how long it will take. Use the opportunity of the approaching New Year to set realistic financial goals for your children.
To make their saving goals achievable, it is necessary we help our kids track their expenses by using a spending plan. A spending plan is like a budget (you can create one yourself or send an email to [email protected] to get one for free). It is divided into two parts – income & expenses, the expense side should be broken down into categories like food, clothing, entertainment, savings, etc. That way, you are able to see how much they spend on necessities and frivolities.
This spending plan can be used to structure their spending into a budget that can be followed strictly. You can also use this to show them that money is a scarce resource, hence, the need for them to prioritise needs over wants and allocate wisely. This simply means putting a 10% savings on every allowance above going to the cinema every week, or packing lunch from home as against buying lunch at school in other to cut down on expenses.
Teenagers should learn about investments. They should have money market mutual fund accounts instead of piggy banks. Some of their money should be invested in blue-chip companies listed on the exchange so they can start earning passive income from dividends. This will introduce them to investing as a source of income. Please don’t do this on their behalf. Involve them in the process, fill out the account opening forms together, talk to an investment professional together with your teenager.
The most important money lesson we can, however, expose our children to is charitable giving. Research from the University of Arizona suggests that the most valuable lesson we can teach kids about money may be how to appropriately give it away. We’ll agree that as much as it is important to effectively manage money, it is also important we give. 19 of the world’s richest signed a global pledge to give away at least half of their wealth. It’s of no use accumulating wealth with no plan to use it in impacting the world positively. We can get more practical with this by dividing their savings into parts, e.g saving, spending & giving. For older children, giving can be included in their spending plan/budget.
We must understand that money is a tool and not the end goal. This understanding must be transferred to our children and the best way to teach them is for us to be an example in this regard. Parents are the biggest influence on children, so parents are the first point of call when it comes to teaching children anything.
I’d like to know your thoughts on this.
Have any questions? Let’s talk about them in the comments section.