Children, even at a very young age, learn about money by observing parents. Besides through observation, parents can teach young children essential money skills by following some of the tips below.
Coins and notes
Let children handle small coins and currency notes so they get a feel of it. As they learn to read numbers and letters, help them read the ones on the coins and notes. As they learn basic math skills, put a few coins on the table and let them count the numbers in different combinations. You are slowly building up their capability.
Sources of money
These days credit cards have become primary modes of payment and children also see parents taking money out of ATMs. Unless explained, children may assume that all they need is a plastic card that they need to have over to get things or to get cash from the machine. Parents must sit down and explain to children how money is made - through hard work. Explain what you do to children, your work, your business etc., If possible, take them to where you work so they know that mom and dad put in a hard effort to earn money. Tell children that money comes out of the ATM only because you had put it there in the first place. Also, when you get a credit card bill, talk to your child about it.
Discuss prices while shopping
When shopping for vegetables or clothes or books or toys, read out the price of items so children know there is a price associated with everything. Do tell children when something is expensive. They need to understand early that the cost of an item is a factor in a decision to purchase. Many bookstores have discount tables, where items are on clearance. Take children there and explain their purpose.
Don't rush to buy
Children are always attracted to new objects and asking us to buy things for them. Even if we can afford it, it is important that we follow a process to buy something. Rushing out and buying it immediately or buying it because the child pesters us, are bad signals for children. Use different techniques. For example, associate some of the buying with a birthday or other special occasion. Associate other purchases with an achievement or good behaviour. And if you see a sale, and decide to buy something, explain to the child that you bought it because it was cheaper to buy now and store it away for later.
Of course, while doing all this, don't forget to live life a little. Surprise your children once in a while. There is nothing like a 1000-watt smile from a surprised child. And the best part is that the surprise does not have to be expensive. It can be as simple as cotton candy or a dinner outing to a local restaurant or a movie.
What you need vs. what you want
Help children differentiate between what they need and what they want. For example, when buying clothes, food, books etc., explain to them that these are essentials that must be bought. When buying toys etc., explain to them about things that you want, that you have to adjust to fit within a budget and can live without.
Use real life situations to make the point. For example, you can explain why you chose to buy a Hyundai rather than a Ferrari. Or why only a certain number of clothes (of various kinds) are all that are required. Ask your kids simple questions like "How many shirts can one person wear at a time?" or "How many cars can one person travel in at one time?" etc., When you go out to a mall or to a shop, you can point out various things to your children and ask them if it is something they need or something that they want? Over time, they will clearly understand the distinction and will benefit from it.
It is also particularly important that you make this distinction when you buy things. Children often tend to see only your outward purchasing behaviour rather than the reasons for it. So if you make a medium to large purchases like a new clothes, a saree or a computer etc., explain to your children why it was needed. If it was not needed, but a want, then take the time to explain either how you waited to buy it till you saved enough and other details about it.
Advertising often prompts children to make requests. Read our article about advertising and explain advertising to your children.
Discussions about retail brands probably become more relevant when children are above 8.
Put money away
Teach children the habit of saving early. For example, buy them a piggybank. Every Friday empty the coins in your pocket and give it to them to put in their piggybank. You can open the piggybank once every 6 months or so and use the money.
A great way to teach charity is to combine it with the savings piggybank. When you open the piggybank every six months, you can have your children count the money and give half to charity and use half for things they would like to buy.