By Lynette Tan
If you’ve only got a minute:
- Early exposure to money management principles can significantly impact a child's future financial well-being. Interactive learning experiences can effectively reinforce these skills.
- Start early by integrating age-appropriate money lessons and practical activities into their lives.
- For preschoolers and primary school children, focus on budgeting, saving, distinguishing needs from wants, and exploring the basics of interest and investment.
Giving kids a solid foundation in money management is key to their future success and happiness. It's not just about saving; it's about building a healthy relationship with money. By teaching them smart money habits early on, we empower them to make informed financial decisions and confidently achieve their goals, setting them up for a secure financial future.
Starting early with money concepts
While it might seem early, introducing basic money concepts to children as young as 3 years old establishes a foundation for financial literacy later in life. Early exposure to these ideas helps them build a healthy relationship with money from the start.
Parents can model good money habits and use a variety of tools to expose their children to the usage of money and its related concepts.
Early childhood (Preschool - Kindergarten)
4 foundational money concepts for preschoolers: Introduce young children to the basics of finance by exploring these 4 key ideas:
- Money's role in making purchases
- Distinction between needs and wants
- Understanding that income is earned through work
- Importance of saving
The first concept that we can teach is to let children understand the usage of money as a medium of exchange for goods and services. For instance, I allowed my child, presently age 7, to hand over the money to the cashier when we visit the coffeeshop, since she was 3.
While this might seem like a simple act to adults, it is teaching the child that we need pay for items when we shop. I would also explain to my child that we cannot take items out of the shop without paying for them.
Parents can also start to familiarise their child with counting coins and dollars once they are in kindergarten. It can be as simple as teaching them to identify the different values of the coins and notes to doing simple addition and subtraction.
The second concept we can teach preschoolers is understanding the difference between “needs” and “wants”. Needs are things necessary for survival and well-being (food, shelter, clothing, education), while wants are things we desire but can live without (toys, video games, candy).
Parents can use the following ways to reinforce the concept of needs vs wants:
Suggested Activities:
1.Visual aid: Create a chart with 2 columns labelled "Needs" and "Wants." As a family, brainstorm and categorise items. Discuss the difference between a need for a water bottle for school versus a want for a specific brand of sneakers.
2. Shopping scenarios: While shopping, engage your child in identifying needs and wants. Discuss why certain items are needed and others are wants. This real-world application helps solidify the concept.
3. Storytelling: Use children's books or create stories that illustrate the difference between needs and wants. A story about a character needing food and shelter versus wanting a new toy can be effective.
Next, it's important to introduce “where money comes from”. While preschoolers may not fully grasp employment and income, they can understand the connection between effort and reward through chores. Simple tasks like tidying up a room full of messy toys and games, or helping set the table can be rewarded with small, age-appropriate incentives. This establishes the principle that work leads to rewards.
Finally, the concept of saving money can be introduced through a piggy bank. Instead of spending all their small rewards, encourage them to save some. You can also use a transparent coin bank to emphasise the growing pile of coins, fostering a sense of accomplishment and understanding the value of patience and saving. By using these simple, playful methods, preschoolers can begin their financial literacy journey with strong, positive associations and a foundation for responsible money management.
Lower Primary
Primary school marks a new milestone for your child. Primary one children will now experience buying food at the canteen with their allowance. For the first time, children may feel like they have some control over what they can do with their money (Hello bookshop and ice cream!)
Children in this age group can focus on reinforcing the concepts from preschool, and we can add on simple budgeting skills, as well as let them experiment with setting their own savings goals.
Parents can start with giving their child a set amount of money per day as allowance and let them save the rest of what hasn’t been spent. Once they are more familiar with how much they’d need per day, parents can start to give them a weekly allowance so that they can plan on how much they want to save and spend.
- Money Jar System
We can introduce the Money Jar System, where we encourage children to split their weekly or monthly allowance into 3 money jars – Spend, Save and Share.
This system involves putting money into 3 jars or categories like spending, saving and sharing. This helps children lay the foundation for responsible financial habits in the future. It is suggested that they put 70% into spending, 20% into savings and 10% into sharing (charity, or buying a gift for a friend/family). If a child struggles with percentages, you might want to explain using proportions instead, as illustrated in the graphic above.
Using this system helps them practise making choices and learn how to allocate their resources.
- Use the POSB Smart Buddy as a financial tool
A digital tool like the POSB Smart Buddy can help children improve their budgeting and saving skills. As the official e-payment partner for Singapore schools, the Smart Buddy watch or card allows contactless payments in schools and at select merchants. Children can also check their balance and track fitness levels. A paired mobile app lets parents allocate allowances, manage their child's finances remotely, and set shared savings goals. By linking parent and child bank accounts, allowances can be automatically debited and savings transferred within set limits.
- Setting savings goals and practising delayed gratification
Instead of immediately buying your child that new toy or game, encourage them to save for it. Setting short-term savings goals helps kids learn the value of delayed gratification – resisting instant pleasure for a future reward. Talk about the importance of patience and planning, and celebrate their success when they achieve their savings goal.
Upper primary
For children aged 10-12, parents can use a savings account to introduce the concept of interest, and how certain financial habits can work our money harder.
To aid in teaching these financial concepts, you may want to consider opening a deposit account such as the POSB My Account for Kids. Not only can they deposit their hong baos received during festive periods and birthdays, they also get a head start in building their savings.
Use this as an opportunity to explain the concept of interest – something which he/she would be exposed to if you had introduced a savings matching scheme. Over time, the savings will compound, which make it a good time to tangibly show the power of compounding and the benefits of regular saving.
Finally, introduce the basic concept of investing simply by explaining how money can potentially grow over time. Use analogies like owning a small piece of a company (stock) or lending money to a company or government (bond). Emphasise long-term benefits and diversification ("don't put all your eggs in one basket"). This shows kids how their money can grow.
These early lessons pave the way for responsible financial habits in their teens and adulthood. Remember, consistent reinforcement, engaging activities, open communication, and age-appropriate teaching methods are key. Starting the money conversation early is a valuable gift parents can give their children.
Find out more about: POSB My Account for kids
