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What to Teach Your Kids About Finance

September 29th, 2011

Money can be a tricky topic to discuss – let alone with kids.

Teaching your kids how to have a healthy relationship with their finances is just as important as teaching them how to eat healthily and stay active. Teaching your kids to brush their teeth, not to eat too many lollies, to use their manners and not pick their nose are obvious. When it comes to forming good habits on the subject of money, it’s not quite so clear.

When to start?

The sooner the better is often the way to go. Some of the basics to start with are:

  • What is money?
  • How do you get money?
  • What is it used for?

Introduce them to the different coins and notes – even the green one we may rarely see.

When they are young it’s not about sitting them down and lecturing them on ‘money’. Try to discuss money as it comes up in their day-to-day life. It’s not healthy to always talk about money, but also not healthy to ignore the subject completely. Find a happy medium.

As you know, trying to get them to listen when they are teenagers would prove impossible. They’re busy doing things like… spending money!

The low down on pocket money.

“Sarah gets $20 a week, why can’t I get $20 a week? And Sarah doesn’t even have to keep her room clean!”

The easy way to do the pocket money thing is to pay Sarah $20 for helping around the house, keeping her room clean, making her bed, feeding the pets etc. Is it ideal though?

Maybe not.

Firstly, Sarah may assume that she doesn’t have to do anything unless she’ll be remunerated for it. Also, turning household chores into a commercial transaction won’t show her what it is like to be a part of a healthy functioning family (where chores are done because they respect others in their family).

Have you tried separating household chores from pocket money?

Some ideas you could give pocket money for:

  • Washing the car
  • Mowing the lawn
  • Cleaning windows
  • Cleaning the pool
  • Gardening
  • Babysitting

Depending on their age, choose something that goes beyond basic household chores. If they are quite young it may just be ‘assisting’ you with the above list.

Once you’ve established what the pocket money will be exchanged for, you can go on to decide how much to give them. It may depend on 3 things.

  1. How much their friends get – make sure they are somewhere in the middle. Not the poorest, not the richest.
  2. What you want them to use it for – lunches, toys, entertainment, bus money, clothes etc.
  3. What your own budget allows – if you can only afford $10 a week, that’s probably okay.

Last but not least. Do you give pocket money in cash? Even better, is it in small denominations? (For example 4 x $5 notes) Giving cash creates a tangible element for kids. Sometimes it’s easier to digest the concepts when you can handle the money. You could consider keeping the bank account for depositing birthday money.

Here’s an idea: Give them 3 jars (or containers of some kind) to keep their money in. One is for saving, one for spending and one for charity. This will help to build healthy habits.

The 3 jars.

If you can teach your kids to separate money into clever categories, it will make life so much easier on them down the track. When they receive their pocket money (in small denominations) they can separate it into the 3 jars. It will teach them the difference between needs and wants.

The first jar is for savings. If there is something that your child wants, encourage them to save for it.

The second is for spending. Anything that you expect them to pay for with their pocket money should be covered by the spending jar (bus money, lunch money, entertainment). It is also good to teach them how to spend their money wisely.

The third jar, the charity jar, does not have to receive as much as the other two but it is good to create some awareness for charity early on.

If you really want to go the extra mile you can get a 4th jar for ‘investing’. It’s valuable to teach your kids how they can grow their money.

Is charity important this early on?

If charities are something your family values it might be an idea to let your children choose one to support. Encourage them to pick a local one so they can visit and help out with the charity too. It’s often said that buying a gift for someone else can bring you more satisfaction than buying it for yourself. Teach them the value of giving.

Good things to say and not-so-good things to say.

You’re bound to go through good patches and bad when it comes to your finances. You may feel like you’re on a roller-coaster ride. Should you invite your children along?

Maybe not.

Experts say not to put your own financial stress onto your children. Try and keep their environment stable. It can be tough at times if you’re really putting the spending brakes on. The best way to explain financial stress is to put a positive spin on it. For example:

Not so good: “We’re on a tight budget because I can’t afford the power bill”.
Good: “We’re going to try extra hard to increase our savings this month”.

Be conscious of what you say when you’re going through a tough time. It shouldn’t be a weight on your children’s shoulders – it’s not their fault. Do they see you argue about money? Do they hear you speaking badly of rich people? Do they see you fret when money is scarce? They’ll take it all in and form their own opinions of money so try and be rational, even at the worst of times.

Think about not spoilling them when times are good. Just because you’ve got a bit of extra cash doesn’t mean you should go and buy them the toy they’ve been saving for all month. Sure take them on a holiday or out to dinner, but keep any distractions away from their 3 jars.

Activities to do to build financial literacy:

  • Take them to the bank and open a savings account in their name
  • Talk them through how a credit card works
  • Show them ways to have fun without spending money
  • Crafternoons (Craft afternoons)
  • Baking
  • Build something outside
  • Puzzles
  • Skipping and bike riding
  • Play football in the park
  • Play dress ups
  • Make a home video
  • Take them grocery shopping and let them do pick the items off the shelves, discuss their purchase decisions in a positive light (and offer some helpful advice)
  • Create a budget with a savings goal
  • Up-cycle mum and dad’s clothes from the 60s to suit the current fashion
  • Hold a garage sale
  • Make a lemonade stand

Watch out for advertising

Teach your children about the purpose of advertising. Point out techniques that companies use to make you feel like you need something. You could even do a taste test with three different brands; home brand, mid market brand and a fancy option.

Lead by example

Do your children a favour and follow your own advice. It would be terribly confusing if you encouraged them to buy ‘Black and Gold’ baked beans but always reach for the ‘Heinz’ can.

Going above and beyond

Can your child draw a basic model of a business with a crayon? Does he understand the purpose of a budget? Can she understand the concept of investing? If your children have shown some interest in money, consider introducing them to basic business and investment concepts. For example:

“If you want this $10 note to become $11 (all by itself), it’s possible. If you lend this $10 to the bank, it will give you an extra $1 when it gives it back to you to say ‘thanks for letting me borrow your $10’.”

The important thing is to tackle the subject of financ early on, don’t leave it too late!

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