Teaching your Child Financial Literacy from an Early Age

Financial literacy is an essential life skill which influences how one manages their finances and could pave the way for one’s financial independence. Too often, young adults enter the workforce without the basic financial knowledge and skills, and end up struggling for years. It underscores the importance of parents teaching their child about money from an early age and guiding them to develop good financial habits that will follow them into adulthood [1]. 

IMPORTANT CONCEPTS OF MONEY TO TEACH YOUR CHILD  
These are some essential money concepts that you can introduce to your young children.   

Explaining money in simple terms: Children need to understand the purpose of money and its role in our everyday life. At its core, money is a tool for the exchange of goods and services. This concept may seem foreign to a young child who has all their needs met by their parents. To make this concept easy to understand, you can introduce real-life examples to your child. For instance, give them an allowance which they can use to buy toys, save for a bigger purchase, or share with others. This teaches children that money is not an unlimited resource, and it should be used wisely.    

Earning: Teaching children the value of hard work by linking it to earning money can foster a sense of responsibility and appreciation. One way to do this is by allowing your child to earn an allowance through chores, such as making their bed or washing dishes. This practical approach helps them understand that money is not simply given but earned through effort and contribution. As a result, they are more likely to value their earnings and be better stewards of the money given to them.  

The value of saving: Instilling the habit of saving is crucial for long-term financial well-being [2]. Introduce the concept of saving by encouraging your child to set aside half of their allowance or earnings. For example, if they receive $10 allowance, encourage them to save $5 for larger goals such as a new toy or book instead of spending it immediately on candy or food. This simple practice teaches delayed gratification and fosters financial discipline in their decision-making.  

Budgeting needs and wants: By effectively allocating their allowances or savings, children develop self-discipline and decision-making skills. When faced with the desire to buy multiple items, teach your child to weigh their options, learn to distinguish between needs and wants, and share ways to prioritise their spending. This skill is crucial in adulthood, where they will need to manage various expenses and financial obligations.  

Giving and sharing: Nurturing empathy [2] and social responsibility through giving is a powerful way to shape young minds. Encourage your child to donate a portion of their allowance to charities or causes they care about. This practice not only benefits those in need but helps your child develop compassion and understand their role in creating a better world. By witnessing the impact of their generosity, children will learn that money can be a powerful tool for positive change.  

EASY AND PRACTICAL WAYS OF INTRODUCING MONEY 
These are some easy and practical ways of introducing money to your young children.  

Supermarket role play: Set up a pretend store where your child can “buy” items using play money. This activity mimics real-world transactions and helps them understand the exchange of money for goods and services.   

Show them bills and coins: Let your child handle real money to familiarise them with the denominations. You can teach them to count and identify the value of coins and bills in fun ways, like sorting change into jars. This activity is educational and helps with developing your child’s fine motor skills.  

Set up a saving system: Use a three-container system labelled Save, Spend, and Share. When your child receives money, teach them to divide it among the jars. For example: 
- Save for long-term goals like a special toy or trip 
- Spend on immediate wants like a piece of candy 
- Share with charities or causes they care about  

With a strong foundation of financial literacy, it will support your child to achieve their future life goals, lay the foundation for responsible spending and pave the way for financial independence.   

TOUCH Parenting aims to strengthen parent-child relationships by providing parents with relevant parenting resources through every stage of their parenting journey. It conducts informative talks and workshops which empower parents with knowledge on preparing for and raising a new-born, navigating the digital age with their child, parent-child communication, and nurturing resilient children and youths. It is also appointed by the Ministry of Social and Family Development as the Parent Support Provider (PSP) for Primary and Secondary schools in Singapore.  

Sources 
1. “Teaching Children about Money & Financial Responsibility” Bright Horizon,   https://www.brighthorizons.com/resources/Article/does-money-grow-on-trees-teaching-children-about-money 
2. Sangeeta, Ojha. “The power of saving: How small money-saving habits can lead to big financial rewards” Live Mint,   https://www.livemint.com/money/personal-finance/the-power-of-saving-how-small-money-saving-habits-can-lead-to-big-financial-rewards-11692507779315.html 
3. “Shaping Hearts, Changing Lives: The Transformative Power of Cultivating Compassion Through Charity” Romania,   https://www.romania-insider.com/shaping-hearts-changing-lives-transformative-power-cultivating-compassion-through-charity