It may be argued that preschoolers are too young to receive financial education. However, a study suggests that children as young as four years old can understand financial concepts including money, income, and expenses. As they progress towards each stage of development, they develop a more sophisticated comprehension of progressively more complex financial concepts.
Besides their ability to grasp certain economic ideas at different stages of development, children also need two important factors in financial literacy: exposure and socialization. Children form the majority of their habits by emulating what they see and hear at home. This means that the financial education (as with all the lessons and good habits) they learn from their teachers in school must be reinforced by their parents at home. Not only does this reassure the child of the significance of financial literacy; it also renders it more effective.
- Introduce currency. Teach your child about coins and bills — how to recognize them, count them, and organize them.
- Start an allowance. Giving them with an allowance will give your children the opportunity to handle and manage money. If they squander the money, don’t be so ready to replace it. Let them learn from their mistakes.
- Explain value. You can do this by teaching them about trade-offs, that you cannot get two items for the price of one. Ask them to decide between two items, explaining that they can only purchase one.
- Explain decisions. One way of teaching good financial practices is to teach them the difference between a want and a need. If they want a toy, for example, you could explain to them that they might be sacrificing necessary purchases, like food.
- Compare prices. A step up from the previous two steps, you can let them look around for similar toys, for example, and ask them to compare prices. This is a good opportunity to teach value. Is the product worth its price?
- Let them pay. When your child has learned about money and their value, have them make small purchases, hand the money to the cashier, and accept the change.
Savings and Investment
Children that are very young have not yet developed a complete understanding of the concept of time — which is a crucial aspect of being able to appreciate savings and investments. To nurture their appreciation of delayed gratification, you first have to teach them the distinction between present and future.
- Set a savings goal. Make the goal one that is significant to them, like their birthday or Christmas. This will help them learn both delayed gratification and the concept of time.
- Avoid purchasing items at their every whim. Have them save up for the items they want instead.
Set an example by being open and honest about your finances. Talk about the money mistakes you’ve made, explain financial decisions you have to make when you go out shopping, and avoid impulse buys. Children mimic what they see, which makes setting an example for your child more important.
Although it can be tempting for parents to have the preschool in Sharon handle their children’s financial education, it’s important to remember that it’s not enough. Children develop habits from what they witness from their parents. So teaching them financial literacy at an early age in the home will help them grow to become financially responsible adults.