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Gifts are always exciting! Who doesn't love to receive a gift? And, when you give monetary gifts to children, they become super excited to choose what to buy.
Of course, the little ones should be given some allowance to choose gifts on their own; but, do not lose the opportunity to teach important financial concepts to your kids.
Do not make your children financially illiterate; instead, start teaching money concepts to children right from their young age.
"The number one problem is today’s generation and economy is the lack of financial literacy."
So, take the opportunity of creating financial literacy through kids’ monetary gifts often given during special occasions.
However, try to make it a fun thing so that your children love to learn the money concepts.
1 Planning how to use the amount wisely
The first step in teaching money management skills to children is to make the plan how to spend and save the kids’ monetary gifts.
You need to make them understand 3 concepts - Spending, Saving and Giving.
Even small ones will understand these 3 concepts.
3 Rules to teach kids about allocation of monetary gift:
- Spend how they want to - 50%
- Should save - 40%
- Charity donation - 10%
Explain the difference between spending, saving and giving along with the short and long term goals associated with it.
For example:
Under the column ‘spending’ there will be 2 categories - Thing(s) to buy now and items to buy in the future.
According to Kara Harmon, a Certified Financial Planner with Moneta Group, “Parents need to encourage thoughtful spending. Frequently discuss and define wants versus needs. Implement a waiting period before a purchase can be made. Will that toy be forgotten in a few days.”
2 Discussing the importance of money and managing it properly
When your children are a little older, discuss with them the value of money - that is, a dollar saved today is worth more in the future.
Also discuss the importance of saving money and investing it properly, so as to get profitable returns in the future.
3 Dollars are always dollars - It’s how much you save
In today’s age of digital money and online transactions, it is quite important to teach the real dollar value.
They need to know that to spend it online, they need to earn and have the amount in the bank account.
To teach proper money management skills to children, also make them understand that when they use credit cards, they need to swipe for an amount that they can pay back at the end of billing cycle; so, need to have the money.
4 Deciding where and how to keep the savings
Only saving from the kids’ monetary gifts is not enough; your children need to understand that they have to store the money properly.
Explain the concepts of checking and savings accounts, and how one can earn interest. Also they need to know how many times they can withdraw amount in a month.
While focusing on financial literacy of kids, make them understand that they can’t deposit gift cards into the banks. However, they can sell as well as buy a gift card online.
The amount they’ll receive will depend on the supply and demand - another thing they need to learn.
Along with this, encourage them to start an emergency fund to tackle sudden unavoidable expenses.
5 Setting priorities and long term visions of money
One of the best ways to teach financial concepts to kids is to share your experiences with your little ones and help them make an idea about the big picture. Tell the story of how you planned to buy a house or a car.
They learn from the stories and understand the concept well.
Now, tell them that they can save their monetary gift for an upcoming event - like a vacation or planning for Christmas.
Explain the consequences of spending the money now and not saving for future.
6 Understanding the concept of terms and conditions
One of the good financial teaching tools is the gift card. It can help you make your children understand how different financial products work in the market along with the respective laws that govern them.
What a child needs to know about gift cards:
- Expiration date must be at least 5 years from the date of purchase
- Expiration date information should be clearly mentioned in the card
- Need to pay a fee if a card is stolen or needs replacement
- Issuers can charge inactivity fee if a card is not used in past 12 months
7 Knowing how to comparison shop and choose
Comparison shopping - An important aspect of financial literacy of kids. So, when the children decide what to buy with the monetary gift, introduce the concept and importance of comparison hopping.
Explain how to compare the price of an item at various retailers along with deciding the most suitable item considering the want and budget.
So, be ready to teach basic financial concepts to your kids when they receive monetary gifts, and watch them enjoy doing so.
