Financial education was not a compulsory lesson when we were in school, even today most schools do not have organized programs that teach children about family economics and financial education. As a result, many children grow into adults who do not know how to manage their money and manage households that live far beyond their means.
If we teach our children about the connection between income and expenses, about the relationship between work and income, and about budget management, we will teach them necessary and meaningful life skills.
Each family has a different set of values and worldviews related to money. These attitudes are expressed in the way money is treated at home and in the way it is managed. In many homes, sentences such as: “Money is not discussed with children”, “Money does not grow on trees”, “The centenarian has the opinion”, “Money is not everything in life” and more, demonstrating how money and its use are expressed differently in each home.
Even when it is not said openly, the messages are conveyed to the children through your financial conduct. The children watch and learn:
Who makes decisions at home regarding finances, and what is everyone consulted on?
What is considered an “important” expense and what is considered waste?
Does the money the children receive as gifts belong to them or to you? Are they allowed to use it as they wish?
Do you pay the children for household chores (e.g. looking after the siblings or cleaning the room) or do you expect them to contribute their share free of charge?
The answers to such questions vary from family to family and each position is acceptable, provided it is reasoned and consistent. In homes where there is no clear parental position and parents tend to live in the moment and just “flow,” money also “flows” and children learn this kind of financial behavior.
The relationship between work and income
It is important to teach children that there is a connection between money and work. Children find it hard to understand that there is a connection between the two, and they even believe that the money comes straight from the ATM. Frequent use of a credit card also helps to feel disconnected between existing money and its use.
It should be explained to the children that the money available to the family is received from work, allowances, and additional income, if any. Depending on the age of the child, it is important to convey the message that the parent goes to work, performs his work and receives a salary for it that allows the family to live.
At the age of 10, children’s sources of income can also be considered: at a young age, the main sources of income include gifts (birthdays, holidays, etc.), and as they get older, sources such as work are added. Older children will understand household sources of income well when they begin to earn themselves from organized work.
The relationship between income and expenses
On the other side of the equation are expenses. Payment for goods and services we want and need: housing costs, food, payment for electricity and water, municipal taxes, education, health, vehicles and maintenance, communications, classes, entertainment, gifts and more. It is easy to explain to children that adults have a long list of expenses using examples. It is useful to explain to children the difference between fixed expenses such as housing, taxes, and variable expenses such as electricity, water, food purchases and entertainment.
Explain to children that they live off what they have, and that in order to manage a balanced budget, monthly expenses must be lower than income. Explain the meaning of living beyond capacity: If expenses are exceeded, the family accumulates a debt to the bank, which must be repaid and reduces disposable income.
Explain to the children that each family’s financial behavior is different and that each family has different priorities. For one family it is especially important to travel in a modern car, for the other it is important for the children’s classes, and for another family family vacations are the most important thing. Each family makes decisions about housing, purchases and leisure culture, and spends its money accordingly. Talk to your children about the things that are important to you and what you love to do. Also talk about things that in your family are less important and you don’t usually invest money in.
The ambiguous expenses
Much of the money goes on small expenses that are not noticed at all. The small expenses add up to significant amounts, and when they are summarized, it is not always clear to us what we spent the money on.
Activities that can be done with children are:
Each family member will receive a small notebook with the words “vague expenses” on the cover.
Ask the children to note in their notebook the shopping they didn’t notice before: a drink or popsicle at the kiosk, candy, coffee and pastry on the way to work, pizza you ordered when you didn’t feel like preparing dinner, and so on. Specify in the notebook what the expense is, the date, and how much it cost. After several weeks of follow-up, the findings were discussed again. As a family, we can examine the expenses and see if they fit the family’s priorities.
How do you deal with the children on financial issues?
- Set limits: how much money you can spend on entertainment, how many sweets you buy per week, and more
- Determine a parental position regarding expenses: whether they are acceptable to you educationally and whether they fit your values.
- Involve the children in the considerations and use phrases such as “we think it is not appropriate for a child your age”, “we believe that money should not be spent on this issue”, “on this issue we decided to save this month”. There is no obligation to persuade, but only to clarify the principles behind the decisions.
- Within the set budget, consult and allow the children to choose some of the expenses associated with them. For example, where should we spend time together? What gift will we buy for friends? What outfit would you like? Giving you a choice conveys respect and trust (“We trust you”) and boosts children’s self-confidence (“I’m capable”).
- Set a budget (depending on their age) and allow them to practice budget management, including the ability to plan, make mistakes, save or spend it all in one day.
- Talk at eye level about concepts such as – important, worthwhile, worthwhile, personal taste and preference, must – need – want, and more.
Sometimes you have to cope…
- The child educates you financially – the better the child gets in money management, the more likely you are to find yourself dealing with statements such as “why do you buy yourself such and such and you don’t allow us”, “you are a wasteful parent”, “you don’t implement what you instruct us” and “why your priorities are like this”. This may cause discomfort and even be perceived as “chutzpah” on the part of the child, but try to be happy that the child is able to examine reality and analyze the economic conduct of the other. This is a sign that you have learned a thing or two about the principles of family finance.
- Children learn by imitation from an early age, and learn patterns by collecting life experiences. Many times what affects children is not what they say but what they do. If there is a contradiction between the two, you will find it difficult to convey the messages clearly to the children.
- The child complains that others have (a game, a fancy birthday, a trip abroad) – children often compare themselves to their friends, it is very possible that the friend’s parents are in a better financial situation than you and it is also possible that their priorities are different, explain to the children your choices as a family and your priorities, state the guiding principles, values and most importantly – your financial ability.
- The older children are worried about your financial situation, and want to know how much you earn, how much your house is worth, and whether you are considered rich. The options for answering such questions are varied and should suit the nature of the family. Some parents will feel comfortable sharing the detailed household income and expenses structure with their older children, while others will feel uncomfortable revealing the details. The important messages that should be conveyed to children are messages of confidence in the way the family finances are managed.