You don’t talk about money? Not good. Children and young people need to learn how to handle money and plan their finances. After all, this is an important part of living a self-determined life.
Attention – I start with some frightening figures. Almost one in three 14- to 24-year-olds has been in debt at some point, according to a survey by the German market research company GfK. 6% of young people have even been on the verge of over-indebtedness. A trigger for this is a lack of general financial education. But this is precisely what is needed to learn how to handle money responsibly. And that, in turn, is an important basis for a self-determined life.
General financial education must start as early as possible. Ideally, as soon as children start to handle money, for example when they receive pocket money. With this in mind, let’s talk to them about money. After all, economic relationships can also be explained in a way that is appropriate for children.
1. Money is real and finite
With the advancing technical development, real money is increasingly disappearing from our field of vision. We pay by smartphone, card, or online transfer. For example, Sweden will be totally cashless in 2023.
And in times of (historically) low interest rates, it is also comfortable to live on credit. We certainly won’t be able to turn back time, but to learn about the value of money, it’s important to give it to children physically. They need to experience that you can really buy something with it – and that, on the other hand, it’s gone when they spend it.
The best way to do this is still through pocket money or the vacation bonus that the kids carry around during their vacations.
2. Plan your finances
Through their own little budget, kids also learn that they need to keep an eye on their finances. If the pocket money is gone again faster than expected, they will hopefully think about where it has gone. Perhaps parents will also encourage them to keep a small list of income and expenses.
Such a list also shows where the biggest cost drivers are lurking. If they know what they are, they can take countermeasures (of course, with your help). For example, you can teach them to take a little longer to decide whether they really must have a certain item. Or whether they can buy the new shirt secondhand, swap it with friends or pimp an old one.
3. Many financial traps lurk when shopping
Who hasn’t experienced this? You stand at the checkout and wonder why a) there is so much on the conveyor belt and b) the cashier mentions such a high amount.
Parents can also share this experience directly with their children – and reveal possible countermeasures. For example, compare prices, write a shopping list before going to the supermarket to prevent impulse purchases, always look at the cheaper products on the lower shelves in the store and set a price limit.
4. Saving is important
You can’t learn early enough how important and relaxing it is to have some financial cushion. You never know what’s coming. In addition, children and young people already have larger wishes that they cannot fulfill immediately. Learning to save is therefore also part of financial buffer. At the same time, it helps them to think more consciously about how much money they have, what they can afford, and what they must or want to spend it on. (Keyword: needs vs. wants)
5. Money must first be earned
Money does not fall from the sky. Parents should therefore talk to their children about their own sources of income, who earns how much and what must be paid for. Perhaps this will encourage one or the other offspring to start looking for a job, take a babysitting course, offer tutoring, or tackle their first small creative business ideas to fulfill their own wishes.
Bonus: What is the stock market, anyway?
How does the money economy work? How do you set up an account? Why can you buy shares in companies? Don’t worry – it’s okay to offer your children more complex topics. And in times when the interest rate on savings is non-existing, it might also make sense for children to take shares and securities for granted. That way, they don’t have to develop the shyness that many people have about them.
PS: For more details, check out my book “My Financially Literate Child” – coming soon. Join my mailing list and you’ll be notified as soon as it shoots out.
