Money management skills and financial literacy are two things many adults lament not having a grasp on while growing up. It is a subject that most schools fail to teach. Also, if you are a parent that is economically struggling, you may feel ill-equipped to teach your child about finances. This guide can help you begin your child's money education early, even before he or she starts school.
What is Money?
The first step is to teach your child what money is. Not just that it is something people exchange for goods and services; you will need to teach them to understand the value of different values of currency, including coins and dollar bills.
Once your child has an idea of the value of money and how it works, teach your child about things that cost nothing, like playing with their friends at home, going to community parks in your town, or playing in the backyard. Then, work on the value of specific items that cost money like food, clothing, toys, and even gas that helps cars take them places.
Making Spending Decisions
While your child is not nearly ready to hold the keys to the kingdom when it comes to making spending decisions, once your child has an idea of the value of money, it is time to allow your child to make a few small spending decisions.
The more practice your child receives making these types of decisions at a young age, the better able he or she will be able to understand the potential consequences of making poor spending choices without getting in over their heads as adults.
It is almost always good, though, when you can encourage young children to think critically about money and how they would spend it.
Spending Plans
Creating spending plans are essential tools to help young children understand where money comes from, where they are spending it, and how it can be used to reach specific goals.
The University of Nebraska Cooperative Extension recommends having children answer three specific questions to establish their spending plans:
- How much money do they have?
- What is their spending goal?
- How much money do they need to accomplish that goal?
You can record all the spending your child does each week for three weeks, so your child knows where his or her money is going. Then, you and your child can sit down together and brainstorm a plan that will help accomplish his or her spending goals. Usually, this involves opportunities to earn more money, to save money by spending less, or some combination of the two.
Earning Money
Unfortunately, most money for pre-school aged children comes, in one form or another, from dear old mom and dad. You can offer an allowance to help them make better financial decisions along the way, as well as opportunities to earn money so they can learn to equate hard work and accomplishments with monetary rewards as well.
Since most young children cannot exactly go out and get jobs, you may have to think a little outside the box to help your preschooler learn the value of earning money. While they may still be too young to put these options in place, common options they can begin to learn about, according to The Balance, include:
- Bake sales
- Lemonade stands
- Chores at home
- Garage sales (or even selling things on eBay)
- Making items to sell for the holidays
- Wrapping presents for neighbors and family members
- Selling crafts
- Yard work (mowing, raking, snow removal etc. for the neighbors)
- Walking dogs, dog sitting, etc
Of course, mom or dad will need to be involved in all these activities, but motivated children can learn invaluable lessons about the rewards of hard work while taking their spending plans to the next level by observing events that bring in extra side money.
Takeaways to Help Your Pre-Schooler Learn Healthy Money Management Skills
Children are never too young to begin learning the basics of financial literacy and how to handle money. This is how parents can help:
- Teach your pre-schooler what money is and how much it is worth.
- Allow children to make small spending choices now to prepare them for larger ones later.
- Work with your child about the importance of spending plans and saving money for the things they really want.
- Offer opportunities for your child to earn money and encourage their efforts.
Doing these things in a child's formative years will help them understand the value of money, its importance in modern society, and how they can control their spending rather than being controlled by it.