1) Have a conversation with your kid(s).
Talk to your children about money. It sounds simple, but this is the most effective way to help your children understand personal finance. Explain how you arrive at financial decisions, what’s in your budget (or if you don’t have one, why not do one together?) and how different aspects of dealing with money make you feel.
2) Don’t forgot about physical cash.
Show younger children the coins and notes you have in your purse or wallet and ask them to help you count them. Talk about the different sizes, colors and numbers and the total coins altogether. Discuss foreign currency as part of the global economy we live in.
3) Explain how money is earned (your work lifestyle is important!)
Talk about where money comes from. We are an increasingly cashless society, and thanks to the invention of cashback it’s easy for children to assume that the supermarket is the source of all of your funds. Showing your child your pay slip and explaining what you did to find employment are good ways of building financial understanding. For older children you can highlight the deductions taken from the gross pay and discuss what they might be used for.
4) Explore the difference between need and want.
For our children to have the lifestyle they want as they mature, we need to explain the difference between needs and wants. Contrast examples of goods they need every day, such as food and clothing, and items such as toys they might want but don’t actually need. This is a great way of introducing the concept of saving and the need to exercise restraint in their spending, as well as helping them to understand that sometimes you won’t be able to afford everything you want.