The importance of teaching young adults about money management

Teaching young people about money management is crucial for their future financial well-being. It equips them with valuable life skills that go beyond just earning money and spending it. One fantastic example is the inspiring story of Moziah Bridges, better known as Mo.

At the age of 9, Mo took his passion for fashion and bow ties and turned it into a thriving business called Mo’s Bows. With the help of his grandmother, he started creating unique and stylish bow tie designs that caught the attention of many. The store is still thriving today!

Through fun examples, real-life experiences, and simple challenges, adults-to-be can be inspired to take control of their financial future. To help them be smart with their money from an early age, follow this guide. 

Why is learning about money important?

It’s never too early to start learning about money management and financial literacy. Young people are like sponges, absorbing the behaviors and attitudes they observe around them, including how money is managed. Teaching them about money from a young age instills good financial habits and attitudes, setting them on the right path.

Just as people learn language, social skills, and other life lessons during their formative years, introducing them to money matters lays the foundation for responsible financial decision-making as they grow older. 

Interestingly, experts in the banking industry have observed that an extensive portion of adults learn about everyday finances as they enter adulthood. This delayed financial education often leads to costly mistakes and financial hardships down the road.

The role of parents and caregivers in teaching money management

People learn about money management by observing their parents and caregivers from a young age. Good money habits, such as saving, budgeting, and delayed gratification, are picked up from positive parental examples. If you’re trading financial markets on a trading platform, for instance, they can learn money and risk management practices just from observing. On the other hand, bad money habits, like impulse spending or financial avoidance, are similarly learned from observing unhealthy financial practices at home. 

If you don’t know how to explain money to a child, question your own behavior first:

• Do you practice good money habits? 
• How do you talk about money? Are you open and transparent about financial topics, or do you avoid discussing them altogether?
• What are your attitudes toward money? Are you overly focused on material possessions, or do you prioritize long-term financial goals and stability?
• Do you involve everyone in financial decisions?
• Do you make financial mistakes? How do you acknowledge them? 

As you become a better role model, try to also create an environment where these future adults feel comfortable asking questions. This is the perfect foundation to teach small money lessons here and there to guide them toward responsible financial management.

Differentiating between needs and wants

These concepts can be explained in a simple and relatable manner.

Needs are things that are essential for survival and well-being. They are things anyone must have to live a healthy and secure life.

• Food: Nutritious meals and drinks to nourish their bodies.
• Water: Access to clean water for drinking and sanitation.
• Shelter: A safe and comfortable place to live, such as a home or apartment.
• Clothing: Clothes to keep them warm, protected, and comfortable.

Wants are things that are not necessary for survival but can bring enjoyment, pleasure, or convenience to our lives.

• Ice cream: A tasty treat that brings joy and satisfaction.
• New skateboard: A fun item for recreational activities but not essential for daily life.

Engage in role-playing scenarios to decide whether certain items are needs or wants so that won’t be an issue in adult life. 

Understanding earning and budgeting

Teach that earning money typically comes from working, whether it’s a job, chores, or other tasks, and introduce different sources of income, such as salaries, wages, allowances, and potential business ventures. It seems simplistic now, but as these young individuals mature into adults, the impact will be clear. If you want to get a bit more complex, discuss the concept of opportunity cost, explaining that choosing one earning opportunity might mean forgoing others.

Note: It’s generally not advisable to offer money in exchange for everyday chores. Everyone should understand that certain tasks, like keeping your living space tidy, are part of your role as family members and individuals. Instilling the idea that some responsibilities aren’t done for financial rewards fosters a sense of ownership of their surroundings. 

Also, you would definitely appreciate it if someone emphasized how important it is to save a portion of your income for the future, even if it’s just for a special toy or a fun family outing.

Making smart consumer choices

Trying to avoid consumer messages doesn’t work, so it’s better to understand the marketing intent behind glitzy promises and images. For example, watch commercials with the sound off and discuss the intended audience and marketing strategies. Just as you would ask yourself thought-provoking questions, like “Why do I want those $150 sneakers? Is it because they are actually good, or is it because a famous sports figure told you about them in the ads?”

Whether it’s billboards, internet ads, or product placements in movies or video games, it’s crucial to recognize how marketing is integrated into different aspects of daily life. 

The power of delayed gratification and goal setting

The Marshmallow Experiment is a classic illustration of the challenges humans face with delayed gratification. It involved offering a choice between receiving one marshmallow immediately or waiting for a short period to receive two marshmallows. And while it’s almost impossible to resist the temptation at a very young age, encouraging the practice of delaying gratification becomes more crucial as people age.

When you bring up money skills for kids, giving in to immediate impulses vs. waiting for things they desire is a big topic. As they witness the rewards of patience and planning, they learn to look beyond immediate satisfaction. Going forward, this will influence their decisions about saving for big-ticket items and planning for education or career goals. 

Cultivating entrepreneurial skills

At the heart of entrepreneurship lies the desire to make a positive impact. This is done by addressing challenges and finding new ways to meet people’s needs.

Here is a thought experiment for any age, for that matter: 

Start by discussing the idea of setting up a small-scale coffee-cart business. Think about why and when people might want to buy a cup and brainstorm what this little enterprise will need, such as ingredients, a mobile setup, a payment system, etc. 

All the subsequent steps are equally crucial for early financial education: pricing and marketing, customer service, handling budgets, and analyzing results. Even if no one ends up as an entrepreneur, the skills will still be invaluable for personal and financial growth. 

Developing money skills through real-life experiences

Most people don’t really do well with theory. So, rather than relying solely on theoretical lessons, real-life situations offer tangible opportunities to understand the value and importance of money in practical terms. For instance, involve the entire family on grocery shopping trips. It’s a chance to show how money gets divided up for necessary items and, on top of that, offers a mini lesson in becoming savvy shoppers. 

Through saving money in their own bank accounts or piggy banks or watching adults invest or trade on Binomo, your offspring will experience the benefits of patience. They begin to grasp the concept of setting money aside, and they may even feel a glimpse of financial security.

Whatever lessons you choose to prioritize as a parent or caretaker, consider the age and individuality of your student. Everyone develops at their own pace, and their financial understanding will evolve over time. There isn’t a set timeline to learn financial literacy; you just need to be in tune with what the person needs at a given moment. 

Sources: 

Money management for children, Raising Children Network

How to teach kids about money, MoneyHelper