By Claudia Mollerup-Madsen
April is “Financial Literacy Month,” and a good reminder of the importance of learning skills for effective financial management. Financial literacy encompasses everything from learning to budget, spending wisely, saving for the future and even starting a business. While these concepts are critical at all ages, taking some time to help your children learn the fundamentals at a young age lays the groundwork for their financial stability and independence in the future.
A child can begin to understand what it means to pay a bill at a young age. As preschoolers play pretend restaurant and grocery store with plastic food and pint-sized grocery carts, they also incorporate toy cash registers and imaginary money into their play. They emulate what they see their parents doing. This begins their understanding of the concept of spending.
Some parents might opt to give their children an allowance for chores they complete around the house at a young age. Early chores might include setting the table and clearing their dishes. By earning money for their completed tasks, they learn the relationship between work and pay. You may consider calling their allowance a “salary,” and make several accounts (or piggy banks) for their earnings, where they “pay taxes” (to you), contribute to savings, donate to a philanthropic organization and more. The opportunity to observe their money being separated into multiple proportions for multiple purposes helps them understand key components of financial management.
As children grow, teach them the difference between wants and needs, and show them how to make a budget and stick to it. Have them save their money for something special and encourage them to stay the course to accomplish this goal. Congratulate them when they are finally able to buy that special something because of their hard work in saving for it.
For older children, consider giving them a clothing “account.” Instead of you being at the helm of buying your children’s clothing, provide them a certain amount of money each month specifically for clothing. Allowing them to make the choices on what clothing items to purchase can illustrate the importance of spending choices.
Tweens and teens can take on new opportunities to earn money through creating their own small businesses like dog walking or babysitting, and may even get a part-time job. While it’s a lesson in entrepreneurship, it’s also a lesson in personal branding and professional development. Through middle school and high school, have your children continue to budget for their spending, setting good habits while they are young. As your children eventually go off to college, they will be equipped with the financial knowledge they need to be responsible about their money.
By teaching your children the building blocks of a good financial foundation today, you can help set them on the path toward a bright financial future.
Claudia Mollerup-Madsen is a Vice President and Financial Advisor with Morgan Stanley in Houston.