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When it comes to financial smarts, it’s never too early to start. Like any habit, good money management starts from a young age. Financial literacy teaches children how to journey through life knowing how to save and use money, as well as to build wealth and achieve financial security for themselves. Knowledge and understanding of how money and markets work are fundamental to survive and thrive in the modern economy, which is organised around money.

 

Here are the basic areas to teach children about the value of money.

Earning money

Money does not grow on trees, but little children might think so if you don’t show them otherwise! Teach them that money comes from hard work. Doing is better than telling – reward them with some pocket money if they help out with extra household chores.

 

They’ll learn to value the money they earned and develop a hardworking attitude at the same time. They will also come to appreciate that the money you give them comes from mommy and daddy’s hard work.

Spending and saving 

 

 

Teach them how to spend money. Help them to understand the concepts of necessary expenses vs. discretionary spending and the differences between each. When you give them their allowance, allow them to allocate how to spend it. They need to be taught the importance of saving as well. This can be done with loose change in an old-fashioned piggy bank, but more importantly, open a junior savings account in their name to show them the magic of compound interest. Interest is an important financial concept as it affects the value of money over time which includes their savings.

Time value of money

The value of certain things appreciates or depreciate over time. This is related to the time value of money, where one ringgit today is more valuable than one ringgit in the future. We can earn more interest on that one ringgit starting today, by investing it, rather than wait on those opportunities (called opportunity costs) and lose out on interest today.

 

This concept applies to cash currency but may not apply to certain items, such as vintage toys which appreciate in value over time. The time value of money is important to understand why they should start saving and investing early on. 

Financial goals  

Children develop good financial habits through practice. Guide them to define financial goals and manage their money responsibly. Perhaps they have their eye on a shiny new toy – instead of buying it for them, get them to save up towards that toy. This will encourage wise spending and develops their decision-making skills as well as financial discipline.

 

Young children may not be able to fully understand the concept of investing, but knowing the time value of money and how to spend and save lays the groundwork for investing when they are a bit older.

 

Importantly, children should be raised to value money and also how the money can be used with kindness. Show them that a little bit of money can go a long way for others who are less fortunate than them. This will help us to raise a generation of young people with compassion.

 

This article is brought to you by CIMB as part of our ongoing efforts to raise the level of financial literacy among Malaysians. Financial knowledge and understanding are key to making well-informed and meaningful financial decisions that will improve all our well-being. This, in turn, achieves CIMB’s purpose of advancing customers and society.