How to teach children the value of money
Erik Bohjort, psychologist and head of research at the pocket money and chores app Gimi offers advice for equipping children with financial literacy.
The Children’s Commissioner for England recently issued a report entitled Gaming the System calling for stricter regulations to protect children who game online, after revealing how children can spend hundreds of pounds on "loot boxes" online.
Loot boxes are consumable virtual items within video games which can be redeemed in order to receive a variety of virtual commodities, for example, new outfits or skills for a playable character.
This report highlights the importance of educating both children and parents on responsible online gaming practices. In addition, as we’re moving towards a more cashless society, education around money management and establishing healthy money habits at a young age have become even more vital.
The younger generation is fast becoming cashless natives, with one in ten adults across the UK living a cashless life, according to data from UK Finance. Unsurprisingly, the number of contactless payments made in the UK has risen by 171% in the past year, now accounting for over three-quarters of all digital payments in stores (data from mobile payment platform SumUp) across the UK.
As tangible pocket money is becoming increasingly unpopular, children increasingly no longer understand the value of physical money and simple tasks such as working out how many coins are needed to buy a toy or sweets will become obsolete.
However, schools and parents can together improve financial literacy among children by introducing new ways of teaching good money habits, so younger generations will grow up with financial independence and understanding.
Read more: 5 Money lessons to teach your grandchildren
Gaming and the use of gaming currencies can teach children about money and are sometimes positive places to practice the behaviours of earning, spending, and saving. So what can parents do to help their children to become responsible gamers?
- When it comes to online gaming, it's valuable for parents/guardians to invest time into understanding the games their child likes. Try to gain an understanding of why and how in-game currencies such as “V-bucks” or “Robux” and loot boxes are wanted or needed.
- Together with your child, set up structures and guidelines for how to avoid, gain, purchase or spend these currencies wisely.
- Discuss with your child how to evaluate the relationship between time, money and desire, or being critical of games that require purchases to move forward. Discuss why staying away from such games might be the best option.
- Have an open discussion with your children about marketing ploys such as buyer offers or discounts.
- For older children, it might be enough to put the cost into perspective to values they are used to handling. For example, “How many days worth of weekly or monthly pocket money does this in-game purchase equate to?” Thus helping your child understand the consequences some games have when making in-game purchases.
Parents can also, at an early age, introduce financial concepts, such as:
- Giving your child regular pocket money, big enough to cover basic wants, but small enough to encourage them to prioritise and save. This can be done with real-money or with a digital piggy bank, such as the children’s pocket money and chores app, Gimi.
- Involving them in everyday money management activities, like planning what to buy at the supermarket, show them how you calculate spending or even involve them in the handling of the household bills. Encouraging children to make decisions about a specific amount of money is a great way to learn about the value of money.
- Giving children, or encouraging them to suggest, activities or day to day tasks revolving around money management. This is not only truly enjoyable for children but it helps them become confident and decisive, whether that be about savings, interest rates, or allowances. Start with planning an activity together and then define a budget, for example, £20, discuss how you would like to use the money while taking into account what is affordable. Then, research what things you will buy, work out which items may be better to buy (are there any offers available etc). As you carry out each part of the activity, make sure to save all the receipts, and then evaluate if you managed to stay within, or broke your budget. This practice of setting a budget is very useful and fun for both parents and children.
- Giving your children or encouraging them to suggest a regular chore which can be rewarded with some pocket money. Usually, such chores are the most appropriate when the chore itself is just outside the scope of what is considered to be done at a certain age. I.e, 14-year-olds are often making their own beds, so introducing a reward for such a “chore” is not a good idea, however, emptying the dishwasher might be just right for a nine-year-old. These types of chores will help them to get an understanding of earning money and the relationship between time, effort and money, all through positive reinforcement.
Educating children through positive reinforcement, encouragement by paving the way for them to act on their own curiosity and interest are some of the most important factors for learning.
Coming up with and doing activities or day to day tasks together with your children, is not only much more enjoyable for your child, but it also helps them to become more confident and decisive about making their own decisions, whether that be about savings, interest rates, or allowances.
Children will become more financially independent and wiser to online spending, paving the way to breaking the trend of financial illiteracy amongst children and young people.
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