Financial planning for children

Life can be a long journey that can take us through times of happiness, sadness, anger, confusion, hard work and fulfilment. Some of us may even enjoy the addition of children into our lives. Raising children is no easy task but can be fulfilling. It is expensive to raise children in today’s time. Hospital bills of the birth event, regular infant and toddler check-ups as well as for times when our children have compromised health can be quite high. Living in a time where cloth diapers have been phased-out, the cost of disposable diapers is at an all-time high. In certain instances, there might be a need for powdered or liquid milk as an addition or replacement to breastmilk. It is also easy to forget that infants and toddlers grow very fast thus a need to constantly buy new clothes for our children. Therefore, it is an advantage to financially plan for the funds we will use to raise our children along with other preparations before the birth event.

So far, we have been focusing on our own personal and corporate financial planning. Some of us may be at a satisfactory financial wellbeing whilst others have been building up momentum to such a point. For individuals that have been working hard on attaining a healthy financial wellbeing, it may have involved a lot of new information, fresh understanding, organisation of both old and new information, unlearning old damaging habits and learning new positive habits. On the aspect of positive habits for ourselves, it is important for us to also create healthy financial habits as part of raising our children. As the saying goes, prevention is better than cure. As we learn and improve our own financial wellbeing, let us include our children in the conversation.

Our financial planning topic for this week is TEACHING OUR VERY YOUNG CHILDREN ABOUT A HEALTHY FINANCIAL WELLBEING. It is possible to teach our children about financial planning from a young age. We can teach our children aspects of saving, budgeting, resource management and investments based on their reality and level of thinking. Very young children, even aged three years old, have great awareness and are at the height of processing new information that can greatly shape their adult life.  

Saving

The foundation of saving as an adult is based on building up funds to achieve our identified and set goals. For us to teach our children the concept of saving or any other aspects of financial planning, we need to first understand our children. Taking the time to know our children is very important. The more time we spend with our children, the more we will get to know who they are and what they want. Our very young children may not yet have the in-depth understanding between needs and wants because we as their parents already provide for their needs. Therefore, it is not surprising that our children have a greater understanding and drive to achieve what they want versus providing for their needs.

Our children may even know how they want to achieve what they want from their understanding of the observations drawn from their environment. Therefore, we need to be mindful of the environment we raise our children in and the impact it may have on their lives. Our children can be exposed to hard work and determination as well as theft and abuse.

Once we gain understanding of who our children are and what they want, we can then gain the understanding of their perspective. Most children have innocent wants that can be easily overlooked. ‘Wants’ that our children may have include having various toys such as those from their favourite children’s television show, staying up passed their bedtime, playing with other children and eating their favourite food.

These wants are important to identify in every child as every child is different. The same wants we identify can be the basis that will be the foundation for our teachings in financial planning and a healthy financial wellbeing. Going back to the foundation of saving as building up, most parents have already taught their children this habit. Saving as a child may not have to include funds but it can be linked to their daily routine. For example, using food. Some of us have taught our children to not eat all the food in their lunchbox at break time for the reason that they have to leave some to eat for their lunch break at a later time during their time in nursery school.

Simple actions can have great meaning.

Budgeting

The foundation of budgeting as an adult is tracking and planning expenses and income. However, from the perspectives of children, it involves more action rather than balancing funds. This is because it can take time to teach a child the basics of mathematics.

Teaching the concept of budgeting will need us to honestly explain to our children that money does not grow on trees. Be prepared to have the same questions asked time and time again. Asking questions is a good trait for our children to have as it is a way for them to truly understand and process new information.

For example, having a conversation with our children to explain that the toys they continue to ask for require money is a good start. Questions of what is money may come into play. We can honestly explain that money to be a form of exchange. We may go further to explain to our children on ways of acquiring money such having a job. We can even go into detail to explain our own jobs as part of bonding with our children.

When our children can use their ability to understand that they don’t have jobs that is the moment we can we can explain on other forms of exchange to acquire money. Other forms of exchange include doing chores around the house, being well-behaved, eating their vegetables, finishing their food, keeping their rooms and toys organised, watering the garden and so forth.

As our children grow, the habit of saving can be advanced after the teachings of budgeting and the two used hand in hand.

As our children accumulate their money, we can introduce a money box to give them the responsibility to save their own money. This exercise will require us as parents and guardians to trust our children. The younger our children are they will ask endless questions of whether the money they have put in the money box is enough to go buy their toy. Be patient. When the money they have saved is enough, we can have another conversation with our children to verify is they still want to buy the same toys or if they have changed their minds to buy something else.

Resource management

The foundation of resource management as an adult is similar to that of children. It is identifying what we possess as assets and gifts. The assets our children possess are the things we buy them which include toys and clothes. We can explain and demonstrate to our children that the proper upkeep of their toys and clothes extends the time they have to enjoy them. The gifts our children have can be identified in observing what they do effortlessly or with great interest. We can also encourage our children by rewarding them when they do well and create a habit of celebrating small milestones. Some parents may worry that children will only grasp the lesson of reward which is not always the case when well balanced with discipline. In later years, our children will have the ability to make the connection between effective hard work and success from these lessons.

Investments

The foundation of investments as adults is also similar to that of children. It is the growing or increasing of what we have currently or acquisition of what we aspire to have in our possession. We can encourage our children to work harder by putting in more time to get better at an activity. For later years, we can make an addition to the definition of money to include where it is kept such as banks. We can financially include and introduce our children to certain products in the market such as a savings or investment accounts. Explaining the how their money will increase can be a challenge. But let us remember to use their level of understanding and the reality they can see as demonstration.

We have lived in a society that has undermined the intelligence and ability of understanding that our children have for many years. However, we do not have continue this culture. Including our very young children in financial planning, we also indirectly teach them trust, consistency, planning, monitoring, effective hard work and success. This process requires continuous conversations, open communication and creativity.

As our children grow, let us remember to adjust and advance their knowledge on aspects of financial planning according to their true level of thinking and reality from their perspective. We can even add a vision board as part of their planning process and goal setting. There is no right or wrong order of teaching these aspects of financial planning – it is a parent’s personal preference. The most important take away is teaching the basics and creating positive financial habits. Therefore, let us include our very young children in the conversation of financial planning to improve their financial wellbeing as adults.