If your child wants a new toy, and he or she deserves it, therefore you decide to buy it. You go to the store, pick it up, and take it to the register. You hand the cashier your card. They ask, “Would you like cash back?” You say no and begin to sign the receipt. Then, your child asks, “What’s that?” You say, “It’s my signature.” They continue to pester you with questions about your money and why you are spending it. Most parents have been in a similar situation. You may think that your child is too young to understand money, but is that the case? That’s what we’ll explore in this article.
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When Do Children Typically Start Understand Money?
Shouldn’t you let your child be a kid? Let them enjoy their childhood without having to worry about money. That’s a valid concern. But, believe it or not, children are often exposed to money at a very young age.
For example, many kids see their parents using credit cards or debit cards. They may also see people using cash or pay by smart phones. Some kids may even have a piggy bank that they put their allowance in. All of these things can plant the seed for money conversations.
When do kids start being conscious about money and developing their first spending habits? According to the University of Cambridge researchers, an average child starts forming money habits by the age of 7.
For some parents, this might be a scary thought. But it doesn’t have to be. The learning process can take place through experience and in playful contexts in younger children, both in their own independent activity and through interaction with adults. If you start teaching your child about money early, they will be better equipped to handle it when they are older.
When Should You Start Teaching Your Child About Money?
So why are we even continuing? We’ve established that you should start teaching your child about handling finances around 7. What’s there more to talk about? Hold your horses, and this is going to be something interesting.
As Yahoo Finance reports, while most people start teaching children about money when they’re seven years old, that’s just the average. Some people begin way sooner. Cambridge researchers say that children can grasp concepts like spending and saving as early as three years old.
That’s right. If you start early, your child will better understand money, and they’ll be able to develop good habits at an early age.
Of course, there are no right and wrong answers in this case, and it’s all about your situation and goals. For instance, if you want your child to be able to handle their finances when they’re 18, then you’ll need to start sooner.
But, if you’re not in a rush, you can wait until they’re a little older. Just remember that the earlier you start, the better.
What Do They Need to Understand about money?
● They Need Money to Buy Things
This is probably the most basic concept of them all. You can’t just walk into a store and take whatever you want, and you need to have money to buy things.
Of course, you can’t just leave it at that. You also need to explain how people get money. Do they work for it? Do they earn it? What does that even mean? These are the questions you need to answer.
● They Can Earn Money By Working
Now, this is a follow-up to the previous point. Once you’ve explained that people need money to buy things, the next step is to explain how they get that money. And the answer is by working.
But, again, this is something that you need to expand on. Explain what kinds of jobs people have. Explain how they get paid. Do they get paid hourly? Daily? Weekly? Bi-weekly? All of this is essential information for your child to know.
How to explain what hard work is? You can give them examples of jobs that people do. For instance, you can tell them that some people have to wake up early and stand on their feet all day, and others have to sit in front of a computer.
● They May Have to Wait to Buy Something
This is a concept that many adults still struggle with. You have money. No one’s stopping you from spending it, correct? Then, why you shouldn’t just buy everything you want right away?
Just because you have the money doesn’t mean you should spend it all right away. You may need to wait to buy something.
Of course, this is a difficult concept for children (and adults) to grasp. But it’s important nonetheless. Help them understand that they can’t always have everything they want right away. Sometimes, they’ll have to wait until enough money is saved up.
● Understand the Difference Between “Want” and “Need”
Here we have another challenging concept, but it’s an important one nonetheless. Your child always wants the latest and most fantastic toys; they want the newest clothes and they want the shiniest new phone.
But do they need those things? No, of course not. They want them.
It’s important to help your child understand the difference between a “want” and a “need.” Wants are things we would like to have but don’t necessarily need. Needs are things that we cannot go without. How can you explain this concept to your child?
Well, you can start by giving them examples. For instance, they may want a new toy. But do they need it? Probably not.
On the other hand, they may need a new coat because their old one is too small. Or they may need a new pair of shoes because their old ones are falling apart. Make sure to use examples that your child can relate to. That will help them understand the concept better.
Understand Money – Make Sure to Lead By Example
Lastly, it’s important to lead by example. If you want your child to develop good money habits, then you need to model those behaviors yourself. Show them what it looks like to save up for something instead of buying it immediately.
Take them with you to the bank so they can see how you deposit your paycheck. Show them how you budget your money and track your spending. The more they see you doing these things, the more likely they will do them themselves.
Closing Thoughts
These are just a few things to keep in mind when teaching your child to understand money. Remember, the earlier you start, the better. But even if you wait until they’re a little older, that’s okay too. Just make sure to cover all the essential topics.
And don’t forget to lead by example! The best way to teach your child good financial habits is to model those behaviors yourself. If you do that, you’ll set them up for success later in life.
About Me
Hi, there. I am Lin. Together with my husband and two kids, we live in the beautiful Netherlands in Europe. I am dedicated to self-development, creating quality time for the whole family, and fully supporting kids with their potentials with all I have learned from engineering, MBA, and 10+ years of working experience in the energy sector.
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