It is important to teach your children how to manage their finances as parents, as this is the knowledge that will actually shape the way they handle money for the rest of their lives. We should not leave this aspect of their learning to the schools.
The first step to teaching your children financial literacy is teaching them the difference between their needs and wants.
For children, what they want is what they want. Differentiating between needs and wants, for them, is not that simple: it might not even make sense! So how do you teach them how to make that difference so that they can handle their money better?
• Define the Terms: give your kids simple definitions of needs and wants. Needs are things that they must have, such as food, clothing, shelter, and school fees. Wants are things that are nice to have, but aren’t really necessary, such as designer label clothes and junk food. Knowing what these mean helps you to make more sense to your kids when you talk to them about needs and wants.
• Take them Shopping: when you go shopping for groceries or household items, take your kids along with you. Arm them with shopping lists similar to your own: let them have an idea of what you are shopping for. As you walk along the aisles, point out things to them and ask questions such as, “Do we need this soap? I really like that brush, but do I need it? It would be nice to have this. Is it on our list? Is this a want or a need?” These will put the concept of needs and wants into perspective for them.
• Teach by Being an Example: something parents don’t seem to realize is that your kids watch you all the time. So live your life to be an example to your kids. Let your kids see you make financial decisions that make them think “Oh, Mum is placing her needs before wants.”
• Teach them Contentment: there are times when needs become wants, and this may become a challenge for you and your children. For instance, your child needs soccer boots. This a valid need, since she is on the soccer team and has a competition very soon. But she sees her teammate with very expensive soccer boots, and she wants you to get her those. The need has become a want! When this happens, explain to your children that they can’t afford to get those expensive things, and what they can afford is most suitable for their need, and so they should be content.
There are instances when the want is affordable, and it may seem cruel to keep emphasizing on needs over wants. We will discuss this later on in the series, but for now, this is how you can explain needs and wants to your children so that they know how to manage their finances better.