It’s never too early to start learning about how to manage money. Including children for some of the simpler conversations about money can help them learn core hard and soft skills needed to manage money.
Here are 3 simple conversations and activities around personal finance in which you can engage your children.
When guiding children to understand the difference between wants and needs, it’s less about ‘good purchases’ and ‘bad purchases’, and more about framing the narrative to help your children grasp what we really need (eg healthy food or a bed), versus what is nice to have (eg dessert or another toy). After all, wanting something isn’t inherently bad; it’s just not always practical to give into those impulses!
Here’s an exercise for your 8-12 year-olds to talk through the difference between needs and wants, and the spectrum of how much we may need or want something:Take your children along for your next grocery shopping trip, and as you put things into the shopping cart and walk by other products, ask them to categorise the products into needs and wants. Be clear about why you’re making certain purchasing decisions about particular products, whether it’s the cost, quality, or usefulness.
Guide them so they can form their opinions around why a packet of chocolates is a want while a bag of rice is a need (or vice versa!). Don’t forget to stress the fact that there are no right or wrong answers, and that you’re not testing them.
We all have to form our own priorities and decision-making criteria; and a great way to do that is to encourage critical thinking and discussion so they can get comfortable forming and sharing their points of view, while also considering your feedback in an open discussion.
Here’s a printable (or downloadable) worksheet that helps your kids differentiate between their wants and needs.
A weekly or monthly allowance can be a great way to facilitate conversations around the value of money, financial decision-making, and the importance of budgeting. Budgeting not only helps make sure we don’t overspend; it’s also a great way to demonstrate what we prioritise.
Along with instilling the hard-skill of effectively allocating money, budgeting also teaches children helps them decide which goals matter more than others, and where they can cut back their spending to save up for something bigger and better. This makes them skilled at prioritisation from a young age, a quality that can be hard to master.
Introduce your children to budgeting by presenting their allowance, then asking them to plan how much and on what they are expecting to spend that month. If their answer is well within their means, that’s great. You can proceed by helping them to allocate their money to various goals effectively.
However, if they’re struggling to fit all the things they want into the allowance amount, this is where it’s important to have the conversation about how trade-offs, and how we can only pay for what’s within our means. It may also be an opportunity to discuss savings strategies, and how if they can’t afford something now, they can afford it later on by creating a savings plan.
Here’s a budgeting worksheet you and your children can fill out.
If there’s something specific that your children want to buy, encourage them to think about the future purchase as a goal for them to achieve. By encouraging them to save for something that’s important to them, you’re helping them build prioritisation and goal-setting mindsets.
Talk to them about how much of their allowance they’re willing to put towards saving for their goal. This is also a great time to teach “save first, spend second.” From there, together you can calculate how long it will take to save the goal amount.
Keep in mind that waiting can feel like a lifetime for kids. They haven’t yet developed the same sense of time that adults have. So, saving up to buy something over an extended period of time can be tricky for them to appreciate. As waiting can be hard, help them visualise their savings goal; map out their journey from RM0 to the amount of money they want to save so they can track their progress.
You can even walk them through how they’d reach their goal sooner or later depending on whether they save more or less from each allowance.
Once you’ve introduced time and savings amounts as key variables in their journey towards getting what they want, you can discuss an action plan so they can achieve their goal. The idea is to give them a step-by-step framework that they can easily follow.
The goal of making a savings strategy is for your children to be able to think for themselves along the lines of “if I save RM30 per week for 6 weeks, I will reach my goal and be able to buy the toy, but if I save RM36 per week, I can have the toy in 5 weeks.”
Here’s a worksheet that you can use with your kids to track their savings progress.
Teaching your children how to manage money from a young age doesn’t just give them the tools and skills to acquire wealth, but it also teaches them responsibility, persistence, and compromise.