What are the 3 basic accounting lessons to teach your child?
Photo by Alexander Mils
As the saying goes, learning always starts at home. That said, learning is also much more than academics. Indeed, the home is the best place to teach good manners and values. It’s also important to teach your child the basics of accounting and financial management while they’re still young.
Some parents believe that handling finances are an adult-only topic, but teaching kids basic financial literacy is not rocket science. More than that, instilling these lessons into your kids at an early age is a great way to set them up for financial stability in the future.
Are you a parent who could use a bit of help teaching money matters to your little ones? Here are some basic accounting concepts and bookkeeping lessons to help you get started:
The concept of earning interest might be hard to understand for kids, especially if their primary concept of a bank is that it’s a place to “store” money. To heighten your child’s interest in saving, teach them that saving up regularly will eventually lead to more funds because of compound interest. You can illustrate this by getting them a piggy bank where they can put a certain amount of money every month. At the end of the month, tell them that you will add more money to the piggy bank depending on how much is in it, as a reward for saving up. For example, you can add 5 pesos for every 10 pesos saved.
Once they’re familiar with the concept, you can begin to teach them the negative side of accumulating interest. More specifically, the damaging kind of interest that one incurs due to unpaid loans or credit. For this, you can act as your child’s “creditor” and allow them to borrow money that they must then pay in increments via their savings. Remind them that every missed payment will lead to more money being shaved off their savings until they are left with none.
Eventually, this will help your child be responsible when handling credit in the future. On top of that, this will help your child be more discerning when choosing a credit card or a loan Philippines-based financial experts can vouch for. Ideally, your child should be able to determine lenders and banks with attractive interest rates, flexible payment terms, easy application procedures, and efficient disbursement options.
Managing cash flow
Your kids may not be old enough to open their own bank accounts yet, but you can still help them gain an understanding of how banks work. In particular, teach them how to transact with a bank once they have their own means of generating income. You can start by taking them to bank errands or having them observe when you’re doing your bank errands via bank apps or websites.
To give them a more hands-on experience, you can encourage your kids to spend their own money or have them do errands such as buying groceries. Young might not understand cashless transactions yet, but you can teach them how to handle physical cash and see how money can change hands.
If possible, you can also help them manage their own mini-business such as a lemonade or cookie stand. Or, if you’re a business owner yourself, you can have them come with you when selling your wares at a community bazaar or farmers’ market. You can offer to pay for their labor using a portion of your profits, which they can funnel into their savings. Doing this is a great way to teach your kids the value of working and using their own money to sustain a lifestyle.
Balancing a checkbook
Balancing a checkbook involves computations on debit and credit that can sometimes confuse even adults. However, you can still teach this concept to your kids by helping them understand how cash flows. At the base level, your kids should learn how to tally their expenses, compare them to their allowance or “income”, and keep the two balanced to prevent getting bankrupt. In addition, your kids should be able to understand that some expenses are more urgent than others—for example, art supplies for a school project are more important than a pint of ice cream.
Ultimately, balancing a basic checkbook helps kids understand how to manage their own bank accounts and create budget plans for the future. Moreover, the knowledge allows them to work with limited funds and delay their gratification as needed.
If your kids are old enough to receive a daily allowance for school, it may help to moderate the amount you give them so that they can strategize their own spending.
Helping your kids through life-saving accounting basics
Very few people are lucky enough to have been taught about financial dos and don’ts at an early age. Most schools also don’t delve into the nitty-gritty of handling money, which is unfortunate because most aspects of daily life are tied to money. While it’s true that your kids will get the hang of good financial habits someday, there’s no harm in getting them started as early as now. And of course, don’t forget to set a good example for your kids when it comes to money management to help them better understand its importance.
In the end, what matters is the foundational accounting knowledge they have gained in their formative years to get them sufficiently prepared for the real world’s ups and downs.