Raising financially savvy kids
CHANCES are, every next adult that you meet will have a complaint about how poorly they manage money or how deep they are in debt. And while some of us deliberately make poor money choices even after being equipped with money skills, many of us fail to teach our children to be financially astute, because, well, not only do we manage most of the finances, but our parents didn’t teach us either.
But failing to teach your child how to smartly and responsibly manage money, according to financial advisor Granville Knight Jr, is doing your child a great disservice.
As early as your child can count or understand basic concepts such as more and less, you can start engaging them in money conversations. Importantly, conversations should be accompanied by healthy financial behaviour since children better model actions than they do words, Knight advised.
So how do you help your children to be money-savvy? Knight shares some tips.
Get your child a piggy bank
One way to encourage saving is by getting your child something to save in — a little piggy bank is ideal to start. Eventually you should help him or her to open an account, but to start things off, it’s nice if they can at least take a peek at the money in their piggy bank from time to time. Tell them no amount is too small to save and when they get money even as gifts or their allowance, encourage them to allocate a portion for savings.
Teach them to set goals and save towards them
“Savings doesn’t make sense without a goal. Allow them to identify a goal they wish to save for,” Knight said. Whether they are going to use a jar, box or whatever container, first label it and remind the child how much they are saving towards. From time to time you can count the money with the child to see how far away they are from the target. When you go to buy whatever the item is, you also want to allow the child to complete the monetary transaction.
Create ways for them to earn money
One of the fundamental lessons that children should learn is that money is earned. They need to know that you don’t just pull it from the fancy machine inside the bank, but unfortunately, since this is what they see their parents do, they believe that all it takes is a couple of punches and a shiny card to score a wad of cash. You need to tell them that when you go out in the days and get home tired, that you work in order to get paid from the fancy machine. To earn money you can give them the opportunity to complete chores to earn cash or to start a business to earn money. So, for example, you can pay them to walk the dog, to assist you with the laundry, or help you to arrange books in your workspace at a price.
Teach them the difference between a want and a need
Sure enough, most children want something — a new phone, even though they have three; they want KFC even though you made sandwiches; a game that their friend has; or a newer version of their backpack being advertised. The list is endless, but you can use these moments to teach children the difference between a want and a need and how they must learn to spend their money, having assessed both.
Teach them the value of investments
It’s good to be able to save towards a target and actually achieve it, but what you have is the exact amount that you saved. So you can teach the child about investing; that way they learn how to make their money earn for them. Since you will be doing things at home as opposed to in an actual bank, Knight said that what parents can do, is to put a system in place where, for example, for every $100 that they save you give them $10 if they forego spending it for a month, and you can do this for each hundred they save and perhaps increase the interest as their savings increase and they continue to forego spending from it.
Teach them about loan/credit
Once your child is saving and understands the value of this, Knight says that you can move on to teaching them about the value of credit.
“So to teach them this, let’s say they want a new toy, and they don’t have enough money. What you can do is offer to buy it if they agree to a payment plan that you have worked out. Be clear about the interest that will be applied since it is a loan, and make sure that you also teach them that defaulting on payments or not paying on time could land them in debt. To ensure that they get the message, if they fail to make payments on their loan, subtract it from their allowance until the money is paid in full. Make sure that you always show them how this is done on paper.”
Get children involved in the banking process
By now you would have realised that you are your child’s first bank manager. However, if you have children, then what you can do is to make them take turns being the banker, this way they will get a better understanding of the process.
Teach them about budgeting
One other crucial part of financial responsibility is knowing the importance of budgeting. Now that you have established the value of money, you should also teach the child to decide what’s priority when spending. So, for example, you want the child to learn to distinguish between needs and wants, and when he or she would have done this, then it’s easier for them to decide how they will spend their money. Encourage them to always make a list so that they have a visual representation of how much money they have, what they want, and how much the item costs, so that they don’t end up with a deficit.
