The Power of Choice: Guiding Your Kids Towards Smart Spending
“If I gave you ₦1,000 now, what would you do?” Ask your child this question. Their response might surprise you. You’ll hear things like: “I’ll buy cheese balls and lollipops, or I’ll buy all the sweets in the world!” This is because many kids see money as something to spend on whatever catches their eye. So, how do we steer them towards wise spending habits? In this post, we’ll explore practical ways to guide your children towards making smart spending decisions.
Understanding the Value of Money
The first thing kids need to understand is the value of money. Understanding the value of money teaches them to appreciate the effort required to earn it and makes them more likely to spend it wisely.
You can do this by showing them the different coins and bills in your country's currency. Take a moment to explain what each one can purchase. This hands-on experience helps them grasp the practical side of managing money in everyday life.
Setting an Allowance
Allowance, or pocket money, as it's popularly called, is NOT free money. It can be a great tool to teach your kids about money management. Here’s how to set it up effectively:
Determine the amount: This should be based on your budget, and your child’s age. The key is to give them an amount that is enough for them to learn from, but not so much that they don’t know what to do with it.
Establish guidelines: Clear guidelines help kids prioritize their spending. Decide what the allowance is for. Is it just for the things they want, or should it also cover some of their needs?
Teach good financial habits: Encourage your child to set aside a portion of their allowance for savings. This teaches them the importance of planning for the future.
Link allowance to chores: Consider tying the allowance to household chores to teach the value of work.
Be consistent: Look at it as receiving a salary. If you don't know when you will receive your salary, how can you plan? Stick to a regular payment schedule to help your child learn about financial planning.
Use Real-life Scenarios
Once your child has an allowance, the next step is to guide them on how to spend it wisely. Before your child spends their allowance, have a conversation about what they plan to buy. Ask them why they want it and if they’ve thought about alternatives.
But at the end of the day, let them make the decisions with their money, and don't try to shield them from the consequences of their decisions. This helps them learn to evaluate their purchases and make more thoughtful decisions.
Teach Good Money Habits
Encourage your child to set savings goals and make it fun. To encourage saving, you can offer to match a percentage of what they save. For instance, for every ₦1,000 they save, you add ₦500. This not only boosts their savings but also teaches them to budget and prioritize their spending.
Teach them to give. This could be as simple as donating a portion of their allowance to a project they are passionate about or helping a friend in need. These small acts can make a big difference in their lives.
You know how you sit with your child at the end of a school term to talk about their results. You should also do this with money. Set a monthly “money meeting” where you go over their budget, savings, and spending together. This habit helps them stay accountable and foster responsible spending habits.