Helping your child understand the value of money
By Robert Wright /December 01,2015/
“I want that one,” is a phrase that most parents hear more often than not, particularly as we enter the pre-Christmas period where advertisers aggressively compete for your child’s attention and your hard earned dollars. Whether it’s the latest Lego incarnation, Barbie, or new release movie merchandise, there are plenty of childhood desires that eclipse the things they actually need.
There are plenty of demands for your spending over the holiday season, and the lead up to Christmas is an ideal time to involve your child in conversations about the family budget and how money works without spoiling the fun of the festive season. It’s also a good opportunity to explain some basic principles about money such as the difference between needs and wants, budgeting, and how to make sensible financial decisions.
Here are some instances when you can introduce your child to conversations about the household budget.
When you decide to say ‘no’ to something they want
Those familiar occasions when your child asks for something can be a good time to introduce the concept of money and how the household budget works. You can use this opportunity to explain that money comes into the household through work and earning an income, and is used to cover a variety of costs from the family’s home (rent or mortgage payments), household food, and utilities such as electricity and internet bills. You can outline the importance of prioritising spending, and if they are still determined to acquire the particular item, you can explain the concept of a savings plan and how this may help them to achieve their goal. Some parents initially offer to match every dollar saved by the child as a way to keep the discussion positive and to encourage them on their savings journey.
When they compare themselves to their friends
It’s normal for tweens to compare themselves to their friends, and from time to time they may complain that their friends have more things or more pocket money. This can be a useful time to explain that every family has its own budget, and some have more disposable income than others. While material assets are one thing, there are more important things in life including being part of a loving family. The key is to be thankful for what they have and when it comes to material things, there is a difference between needs and wants. Needs being those essential items we need to survive, and wants those luxury items or treats that are nice to enjoy once in a while.
Understanding the importance of prioritising needs before wants is a significant life skill we can apply from our early years of development right through to retirement. Learning how to differentiate needs from wants – and allocate money accordingly – will give your children a great head start in being able to understand and manage their spending behaviour further down the track.
For younger children, the regular grocery shop can be a great learning experience, particularly if you take along a shopping list that outlines all your grocery needs. Ask your child to help find the items on the list and tick them off as you go. As an added bonus, perhaps suggest that after the essentials have been purchased, there will be enough money left over for a treat – which your child can choose. It can be an easy and fun way to learn how to prioritise buying needs before wants, as well as weighing up and choosing from the many ‘want’ items available.
Juggling needs over wants is one of life’s ongoing challenges, and just like adults, children may not always make the right decision, but simply becoming aware of the thought processes and implications of our choices can be a valuable life lesson.
The more your child feels part of the household decision making when it comes to money, the more they will appreciate how important the family budget is. Next time you are planning a significant purchase for the family such as a new car or overseas holiday, engage them in the conversation and decision making process. Asking for their opinion will make them feel valued and can help them to develop a sense of responsibility when it comes to making financial decisions in the future.