Teaching Your Kids About Money
Instilling financial literacy into our kids is essential for their futures in the real world of careers, mortgages and stock markets. The average child receives very little education at school or college about personal money management and at home, many parents don’t talk to their kids about money because they don’t feel sufficiently confident in doing so. The majority of kids enter the workplace without ever learning about personal financial planning.
Once kids can count, parents should start to teach kids about the concept of money. Most 5 year-olds know where money comes from – the ATM! Understanding that parents actually work for it is the next step in their learning.
One of the best ways to help kids understand finances is to give them an allowance but only when they have learned to count money. Each purchase they make and the allowance payday can be a great time to teach kids about money. Pay children for ‘work’ and let them spend their own money. Once they start buying what they want (sweets and toys) it is quite common that many children will then hoard every Yen they can get their hands on. My 6 year-old is a hoarder but the challenge is to ensure he does not start worshipping money. It’s a fine balance. This may well determine what kind of adult your child becomes in relation to managing personal finances.
However some parents believe that the allowance should not be linked to chores and that kids should be expected to help out around the house without pay! That’s your call of course.
Beware of allowances however. As children become smarter, they may ask for a raise! When this happens, decide on timing and negotiate. How long since the last raise? What did they do to deserve a raise? What amount of the raise will be saved and not spent?
One way to encourage your children monetary discipline is to make saving some of it, a condition of their allowances.
The other question is, how much do you give them? Well obviously common sense and your own family income should dictate and don’t be swayed by what your children are saying their friends get. One barometer is to recall the days when you were children, and what your parents gave you. You then make it a figure which today, purchases approximately the same items your own allowance could all those years ago
Once they are at high school or college it is critical your children are taught about money. Bank accounts, credit cards, and debt are an integral part of college years. Teaching high-school kids about banking and credit will prepare them for the real world.
There is even a school of thought that high school students should learn how to invest with real money (most likely yours!!) to gain an understanding of the machinations of financial markets before it is their own money that they put at risk.
So the message is, start teaching your children early, and instill a sensible approach to money management which should form a good platform for their adult years. They need to develop the skills and experience needed to successfully navigate the financial realities they will face when they are self-supporting adults – that’ll be the day!