From our archive. This article was published on 22 July 2020. Rules and amounts may have changed since.
One thing we learn from our personal finances is that we need to have a savings buffer. We should always have something in our savings pot. Children need to know the story of the ant and the grasshopper.
This fable is about a grasshopper that sang all summer while the ant worked to store up food for the winter. When winter begins, the grasshopper is soon starving and begs the ant for food. The ant, however, rebukes his laziness and tells him that he may as well dance the winter away.
Like the ant, we need to make plans for the future and put money into our savings pot in case of a sudden need or an emergency. Too many people rely on the flexibility of the labour market. If you ask them how they deal with shocks, they say: “I’ll take a second job.” Unfortunately, many do not have this option. You cannot go to a restaurant right now and say: “Hey, I can work more hours.”
People also borrow, which provides liquidity, but without insurance. If you borrow in an emergency, for example by maxing out your credit card, you get money, but at a higher price. You do not want to pay high costs in times of need. The best way is to always set money aside. We should have three to six months of savings, because that is the surest way of being able to get at your money. How does this translate into a lesson for children? Put money into that savings pot, because we may have a wish for the future or for an emergency.
How do you talk to your children about the crisis?
It is important to pay special attention to children during this time. Children have “a lot of imagination”, and if they hear adults talking about the virus in a worrying way, they quickly become anxious or scared and can imagine very unpleasant things, which can lead to long-term negative effects on the child’s psyche.
To tackle this as well as possible, there are 3 important strategies:
- Be discreet about what is said in the presence of children and young teenagers. There is no need to be secretive; they need to have some information, but it is important for parents not to burden their children with a feeling of worry or fear of an invisible enemy.
- Spend some quality time with your children by showing them special attention and love during this time. Children need a reassuring environment during this time, so let them take part in fun activities and congratulate them when they carry out a task well.
- Routines can also help to soothe fears. Children are hugely reassured by discipline, not by being disciplined, so put a disciplined routine in place for your child.
What can we teach our children about finances?
We do not want our children to associate personal finances with fear and crisis. It is quite the opposite: personal finances can help us get through a crisis. Now is the time to teach children the basic principles of saving and budgeting. Children also need to learn what money is. If you think children are not interested in money, give them a piggy bank and you will see your child turn into a banker straight away. They should learn this simple concept: money can buy you things. You put money away to save for the things you want to buy. At secondary school you learn how interest builds up on a savings account. The sooner children learn these concepts, the better.
We also need to teach them the simple concept of making a budget. We are all limited by a budget. It is not about what our wishes are. If you ask me, I would love to have the biggest possible house with a garden. But the reality is different: what I can buy depends on my means. That is a very important lesson for children: your choices are limited by your means.
To help children with their budget, parents can give their children a weekly allowance and let them manage the money themselves. If they want to buy a takeaway pizza, they have to decide for themselves whether their budget allows it. This is a good moment to instil a sense of limits. Children will then understand why parents do not buy them every toy they want. They will also understand that money is something you earn and that it does not simply come out of the wall.
Do you want to arm yourself with (more) financial knowledge? We are happy to help you take the next step. Click on this link and find the information you are looking for at our Financial Well-Being Academy. The goal of financial education is financial well-being. Build your financial self-confidence together with us, and with it that of your children. We look at your financial well-being from an overall perspective. Are you interested in our approach? Then contact Het Financieel Huis via this contact form or by email: info@financialwellbeingacademy.com.