How we carry out our day-to-day financial transactions has changed a lot over the past few years. Cash was king when I was growing up and you rarely witnessed a card being used to pay for everyday items. Nowadays, most transactions are paid for with debit or credit cards. This increased with the arrival of Covid when most stores insisted on card transactions only. So how does this method of payment impact your children and their financial literacy skills?
Children can’t learn financial management unless they see it in action.
It can be very difficult for children to learn about money when they never see it being used. I remember my mother getting her wages on a Friday and separating it out for various bills. The money for the Cablelink guy would be left out for us to pay him when he called to the door (only people of a certain age will remember the Cablelink man coming to the door!) As a child, I knew how much a pint of milk was because I was regularly sent to the shop to buy it. I didn’t realise it at the time, but this was the beginning of me building my financial literacy skills.
Teach children the difference between needs and wants
Children may want a particular item, but do they really need it at this moment in time? Explain the difference between needs and wants to help them understand. For example, food, light & heat, and mortgage payments are needs, but you would also love to have a holiday. However, the holidays are simply wants and are not a priority over your needs. This mindset will help them to understand the difference between priority debts and secondary debts when they get older and ensure they know which to prioritise. The CCPC describes priority and secondary debts as follow;
Priority debt: Rent or gas or electricity bills are priority debts and need to be paid first. If these are not paid, you could be at risk of being evicted or having your electricity or gas cut off.
Secondary debt: Other debts, e.g. credit card debt, overdrafts and personal loans are secondary debts. Secondary debt with the highest interest rates should be paid after priority debts.
Include your children in discussions on family finances
It is important to have discussions about money and the family finances with your children. Include your children in planning financial outlays such as grocery shopping, paying a bill etc. You don’t need to give your children personal details such as your income, but you can discuss things such as good financial habits you learned at a young age. It is also good to include discussions on financial mistakes you may have made or maybe financial regrets you have. For the most part, we learn from these mistakes.
The importance of having a rainy-day fund
Large household outlays such as a new washing machine or fridge freezer are easily attainable nowadays with stores offering several finance options. But many of these finance options have hefty interest charges. It is best to have a rainy day fund set aside to cover any financial shocks that may occur. Teach your children about the importance of saving regularly and building a rainy-day fund for unexpected outlays.
Give children the real-world experience of managing their own money
You can give your children pocket money and let them manage it. If they decide to blow it all in one day and have nothing left for the rest of the week, then they’ve learnt a valuable lesson that money is limited. They’ll learn how to manage it better the next time around!
Having conversations about finances from early on with your children will embed financial skills. This will help to build positive financial behaviours as they grow into adults.