Personal finance management is a life skill
Unfortunately, one of the greatest skills adults are required to have is not commonly taught at schools around the world.
We’re not talking about how to make money as a YouTuber or even how to make Sunday morning pancakes — though both are very relevant skills these days — instead, we’re talking about personal finance management. This skill is necessary for you to be able to live the lifestyle you want to without worrying about earning your next paycheck. To adults, this is called retirement.
So let’s face it — though your kids’ high school teachers are not teaching them about retirement planning, here’s where you must step in unless you want to keep funding them forever. Let’s start with allowances. Instead of just paying for your children’s expenses, giving an allowance is the method of giving the funds they need to buy these things in their own hands. This allows them to learn about the value exchange of money.
A step further is giving them a set allowance at a set frequency (e.g. weekly or monthly) and teaching them to pick where they choose to spend their money so that they learn about budgeting.
A step even beyond that is pushing them to earn their allowance so that they learn about what it’s like to work for a living.
The pitfalls of struggling to learn about financial management
Teaching children about financial literacy at a young age is critical for several reasons.
- Preparing for the future: Children who learn about financial literacy at a young age are more likely to grow up to be financially responsible adults. They are better equipped to make smart financial decisions and are less likely to struggle with debt or financial problems later in life. No one wants a Nellie LaRoy liability in their family — look at what happened to Manny in Babylon, after all.
- Building confidence: Children who understand the value of money and how to manage it are more likely to have confidence in their financial decisions. They will be better equipped to handle the challenges of adulthood, such as buying a home, investing, and saving for retirement. Now, we’re not talking about over-confidence Wolf of Wallstreet style, but something more realistic than that.
- Reducing stress: Children who have a good understanding of personal finance are less likely to experience financial stress and worry. This is because they have the tools and knowledge they need to make smart financial decisions and manage their money effectively. Who wouldn’t want some peace of mind?
- Improving future prospects: Children who learn about financial literacy at a young age are more likely to have better future prospects, such as higher-paying jobs and better credit scores. This can open up more opportunities for them in the future, such as buying a home or starting a business. In other words, less of a headache for you as a parent during your own retirement.
In the words of Britney Spears, “You want a Bugatti? You want a Maserati? You better work.” Here are some tips for parents to consider when managing allowances for children aged 7 to 18. Now let’s get your kids to work!
Our 7-step approach to instilling financial literacy at a young age
- Start Early: Children can start learning about money management from a young age. Parents can start giving a small allowance, such as AED 10 to AED 50 per week, to children as young as 7 years old, depending on their own housefull budget as well.
- Encourage Earning: Allowances should not be given for free, but instead earned through chores or other responsibilities. This helps children understand the value of money and the importance of hard work.
- Teach Budgeting: Children should learn how to budget their allowance. Parents can encourage them to divide their money into categories, such as savings, spending, and charity (Ramadan is coming up, after all). Parents can also help children set savings goals, such as saving for a toy or a trip.
- Use Real-Life Examples: Parents can use real-life examples to teach children about budgeting and personal finance management. For example, they can take their children shopping and explain how they make decisions about what to buy and what not to buy based on their budget. Brownie points for teaching them how much products vary by depending on the retailer as well — such as fruit shopping in Union Coop vs. Waitrose, for example.
- Open a Bank Account: Parents can help children open a savings account, which is a great way to teach them about saving and earning interest. Children can learn about how to keep track of their money and make deposits and withdrawals through their own accounts. These days, there are plenty of FinTechs in the UAE who can help set up accounts or event virtual cards for children under 18 — *ahem, ahem* like yours truly!
- Discuss Money Decisions: Parents can also have regular discussions with children about money decisions, such as choosing to buy a cheaper item or save for a more expensive item in the future. This helps children understand the long-term benefits of making smart financial decisions. Be careful not to make it sound like you’re lecturing them, though!
- Lead by Example: Finally, parents should lead by example and show children how to manage their own finances. Children learn by watching their parents, so parents should make sure they are setting a good example when it comes to budgeting, saving, and spending. So why not include them in your own houseful budget discussions as well?
We’re here to help you help your children when it comes to financial literacy
In conclusion, teaching children about personal finance management and budgeting is essential in preparing them for their future. By giving allowances, encouraging earning, and teaching budgeting skills, parents can help their children develop strong financial planning skills that will serve them well for the rest of their lives. Stay tuned for a very special product we’ll be launching soon targeting children aged 7-18!