How to raise financially literate children ...Middle East

Each person’s financial literacy has a profound impact on their long-term financial success.

To prepare them for life, we should teach our children about budgeting, saving, debt, and investing. Then as adults, they’ll have the skills necessary to make smart financial decisions.

Start early

If you find creative ways to teach money skills, financial literacy can be fun and something your children embrace. When my children were young, we played the “grocery game” during our weekly shopping trips for food and essentials.

The grocery game takes a bit of patience but works by giving your young children a small budget, say $3 to $5, to spend when you are grocery shopping. Set your expectations prior to entering the store.

For instance, you might reinforce that they have to stay within their budget and that candy is off-limits. Once the parameters are established, while you are shopping, your child can select anything that fits in their budget to purchase. (Caution: This may be something you would not select.)

While they are browsing for the perfect item, you have the opportunity to discuss price, product placement, and value. Don’t be surprised if an item is returned to the shelf and another one is selected during your shopping trip. Budgeting is about making choices.

When you reach the cashier, let the child pay for their purchase and keep any change for the next grocery game.

If you think your kids are spending their money on the wrong items, set your feelings aside and let them do it. What you might see as a mistake is also an opportunity to talk about why they may not have made the best possible purchase. Over time, they will learn to purchase differently.

Once, while shopping, I overheard a mother disparage her son for the choice he was making while selecting a toy. She let him select the item but believed the toy was a waste of money. It was clear how she felt. Her behavior was loud, negative, and belittling. Unintentionally, she was instilling self-doubt in her child about his ability to make sound purchases.

Because of the mother’s behavior, the toy he selected will always have negative connotations and may just sit on the shelf because the child, consciously or not, felt affected by his mother’s outburst.

Teach basic financial concepts

After your child has accumulated a sum of cash, take them to the bank to open a savings account. When they receive their first bank statement, spend a few minutes discussing the information on the document.

When my oldest son was about seven years old, we opened a bank account and he made his first deposit. He was in tears as he handed over his cash to the bank teller because he thought he was giving his cash away. But several years later, he was ready to open a brokerage account. He quickly learned the benefit of investing and compounding interest.

In our household, we purchased large-ticket items for our children only when it was their birthday or at Christmas. If one of our children wanted an expensive item not earmarked specifically as a gift, we would offer to pay half of the cost. This meant they would need to save their cash until they could afford the purchase.

Depending on their age, the cash may have come from an allowance, extra chores, a gift or a job. If they were not interested in saving for the item, we’d learn together that the purchase really wasn’t that important. When they chose to save their money, they were awarded with the purchase and learned the value of delayed gratification.

Look for ways to create learning opportunities that work within your family dynamics. Here’s another example. Every summer before school started, we would spend a day shopping for school clothes and supplies.

To plan for this day, I would identify a budget, and then, with our children, we would pencil out the list of desired items. We would dissect and prioritize the items on the list to identify what was necessary, and what was simply desired. Again, any rules for what was not acceptable would be established before we left home.

An envelope of cash was earmarked for each child. The day was spent shuffling between stores and finding the desired items within the allocated budgets. If an item was more expensive than planned, then something else would need to be less expensive than budgeted. It was fun to observe each child figuring out what was important to them.

We would break for a nice lunch and then shop again until we had acquired the items on their lists. The memories of these special days will always be dear to my heart.

As your child grows older, the rules and discussions will change. For instance, you might ask them to plan a meal, establish a budget for the meal, then purchase the items they’ll need.

Or you can ask for their input while planning a family vacation. However you choose to implement their suggestions, spending time with your children to discuss finances will help them learn to make wiser and more thoughtful decisions in the future.

Lead by example

Children learn by observing your actions. That’s why it’s essential to model positive financial behavior for your children, thinking about what they are learning from your actions.

Often, I hear people say to their children, “I don’t have any money,” but then turn around and use their credit card to purchase something that they cannot really afford. Their children are learning that if they don’t have any money, they can just use a credit card to cover the debt.

Talk about credit cards, auto loans, and mortgages. Teach your children that if debt is managed, it can be a financial tool. But if not, over time, debt can lead to financial problems that are difficult to overcome.

Help your children understand that money itself is merely a tool, and stuff is not an indicator of self-worth. Set an example for your children by living within your means. Plan low- or no-cost family activities such as board games, hiking, reading, or family movie night. Map out your favorite thrift stores and spend an afternoon finding special treasures.

Even when your children are young, speak with them about charitable giving. Talk to them about organizations they might like to support, then earmark part of their allowance for donations to those causes. Volunteer together at their favorite charities.

Once they are older, encourage them to spend some time volunteering on their own. When my daughter turned sixteen, she decided to volunteer at our local animal shelter as a foster kitten mother. While she was learning to be philanthropic, she also discovered she loved cats. Her favorite foster kitten, Dusti, became a beloved member of our family.

Don’t let your intentions of providing your children with a good life go awry. Even though you love your children and want to make them happy, they need to learn about managing money to be financially independent.

Incorporate conversations around finances into your lives. Take as many opportunities as possible each day to teach your children about money. Remember, good or bad, the skills your children learn as they are growing will last a lifetime.

Teri Parker is a certified financial planner and vice president for the Riverside office of CAPTRUST Financial Advisors. She has practiced financial planning and investment management since 2000. Contact her via email at [email protected].

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