Financial literacy is something that many adults struggle with, but it doesn't have to be something that your child struggles with.
Teaching children financial literacy while they are still young can help them understand money and how to avoid common mistakes that can land them in hot water when they are older. Here are six handy ways you can start teaching your child financial literacy.
Teach them to save
Knowing that money is not meant to spent without any goal in mind can help children learn to save early. For example, giving them pocket money and telling them to put aside 5 -10% to save for something they want can teach them delayed gratification and how to manage their finances better.
The difference between wants and needs
At first, everything may seem like a need in a child's eyes. Therefore, letting them understand that there is a difference between needs and wants can help them make better decisions in the future. When it comes to finances, help them draw up a list of things that they want. Work together on separating these into a need and wants column once you have explained what the difference is.
Letting them earn their own money
Starting them early on the concept of working for money can make them better managers of money when they are adults. This can be in the form of making them earn money for their chores or helping them set up a small business that is in line with their interest. Remember to be patient with your child as it's possible that they will make many mistakes before they get it right.
How to budget
Setting up a budget is in line with teaching them the difference between needs and wants. A practical way to do this is to involve them in the process of how you set up your budget. You can also use their needs and want list to create a budget towards saving money for these items.
Teaching them about borrowing
South Africans are infamous when it comes to managing debt due to the misunderstanding of interest rates and grasping the basics of financial literacy. Teaching your child financial literacy by introducing a healthy borrowing culture can give them a practical lesson. You can act as their creditor by lending them an amount that they will be able to pay off. For example, you can give them the option to borrow some of their pocket money in advance but with an interest rate that they will have to pay back.
Setting financial goals
Good financial literacy is understanding where your money goes at all times. Right down to the last cent. Setting financial goals leads to better management of personal finance. It also brings things into perspective on what is worth spending your money on and where to invest your money to see real growth.