Give Your Children a Golden Start

When your children start asking, “Mummy, buy us this” or “Daddy, buy us that, pleease!” then it’s time to start talking to them about money.

Until then, they didn’t ask for things. You just bought them what they needed. Now they’re starting to express wants and needs of their own. We all want to give our children the best, but how do we distinguish between what they ask for and what they should get?

Until children start asking for things, they’re not ready to understand the concept of money. But once they have personal wants—a toy car, a doll or lollies—it’s time to start talking to them about money.

Nothing’s free

The first money concept they need to learn is that things are not free, that when you buy them something or take them somewhere, it costs money, which is the product of time and labour.

The benefits of teaching your children about money early on are both immediate and long term. In the short term, you’ll help them to develop saving habits, learn how to make smarter purchases and understand why they can’t immediately have everything they want.

In the long term, you can help them learn to avoid accumulating debt and begin understanding the meaning of investment. By teaching the value of saving for the future, you are helping them learn how to plan for their financial security.

If you can show young children what to do with their money as soon as they know what money is, they’ll develop habits that will serve them well throughout life.

Money management

We must also teach our children how to manage money. Otherwise, they’ll get into the habit of regarding their allowance as a licence to buy lollies, toys, music and clothes indiscriminately. As adults, if they buy everything they want immediately, they’ll soon be in trouble.

It’s important to be aware of the stages at which each child’s financial growth takes place. Children are unique individuals who develop at their own rate, but all of them, as they grow older, must be included to an ever greater extent in discussions of limits and consequences.

The following are some suggestions for helping children to learn at age-appropriate times.

Preschoolers (3–5)

As soon as your children can count and grasp the transaction involved in buying something they want, they’re ready for an explanation about money. You can help your children both by giving advice and by setting a good example.

It’s never too early to help your children build a basic understanding of money with some games that will also entertain them.

• Try playing shopkeeper. Have your child price items with coloured stickers and use play-money to buy them. Keep the sales revenue in a “bank.” Switch roles—shopkeeper and shopper—with your child.
• Explain to your children your choices as you shop in a supermarket—how sale items are cheaper, and why bigger sizes are a better deal.
• Talk to them about coins and notes, and help them understand that the various numbers signify different values. Then offer to trade them your 10-cent coins for their 50-cent coins.

Show them the money!

You can use money to teach your children the following skills:

• Maths skills: Using money involves adding and subtracting, comparing prices and estimating one’s income and expenses in order to calculate whether one can afford to pay for a desired object. Even the simple money decisions your children make in the early grades will help them to understand the value of their arithmetic lessons in school.
• Community skills: Let your children share in helping with a favourite charity, a family activity or a community project. Allow older children to help decide what kind of charity or project the family will work on or contribute to. Where money is needed for a project, let your children both contribute and if possible, decide how that money is to be used.
• Social skills: Using money involves many interactions with others, including speaking with salespeople, bank tellers and employers. Social skills are an important part of daily money management.
• Internet skills: More and more people are making more and more of their purchases online with credit cards. It is important to teach your children how to do this, how to avoid overextending their credit card use and how to watch out for phishing scams that seek to compromise personal identity.

Ages 6–8

This is allowance time. One of the best ways to teach children money management is to let them use money. Provide opportunities to start using money early on, but in small amounts so their mistakes won’t be too costly.

It’s a good idea to give your children a monthly allowance. This will help them to begin estimating the cost of purchases and figuring out how to get correct change and how to plan ahead.

Teach your children to count money. One way is to ask them to count their allowance when you hand it to them. After doing this a few times, try deliberately making a mistake (giving them less than what you promised them) and let them catch it. Or give them the money to pay for a small purchase. If they bring back the correct change, let them keep the coins.

We all have to live within our means. One way to instil some discipline about spending is to set a limit on what you’re willing to spend on clothing or other common expenses. If your children want something more expensive, let them understand that they have to make up the difference from their allowance.

Preteens (9–12)

At this age, it’s appropriate for your children to start earning extra money to supplement their allowance. Some preteens even develop an interest in investing. If your children are curious about investing, encourage that interest.

At this age it’s common for children to want a lot of stuff. So the next time your children say, “Why can’t we buy it?” take the opportunity to tell them exactly why.

Try this: Tell your children how much you earn each week or month. Count out that amount in play cash and separate the notes into stacks that represent food, rent, utilities, savings and so on. This will show your children in graphic detail why you have to set limits on your expenditure of money and it will illustrate to them why they need to learn to set limits on the expenditure of their money.

Borrowing may start to become an issue. “Dad, can I have an advance on next week’s [or next month’s] allowance?” Go ahead. Lend your child the money, but set a deadline for its repayment and make a point of charging interest. Finding out how much it costs to borrow money is an important lesson for your child to learn. You can also assign him or her odd jobs around the house to pay off the loan and interest.

Other things you can do to help your preteens learn about money and its value in the world include:

• When they want something that exceeds their allowance, encourage them to save for it.
• Show them how to comparison shop and wait for sales.
• Take your 11- or 12-year-old to the bank and help them open a savings account. Let them learn how to make deposits and withdrawals. The bank can set it up to require your signature as well as theirs for withdrawals, giving you some control.If they want something truly expensive, help them set a long-term goal so they can experience the thrill of actually achieving it.

Early teens (13 and 14)

School-age children eventually grow into high school or university students, and the roller coaster of emotions, intellectual growth and social pitfalls gets faster, steeper and harder to predict. They are transitioning from a relatively sheltered life with few worries and responsibilities to the realisation that in a few short years they, too, will become part of a complicated world that comes with a load of fears, failures and far-reaching consequences.

The young adolescent mix of childlike innocence and uncooperative stubbornness makes it hard to parent them, but this is the time when they need their parents the most. Some of the things that parents will need either to help their teens to develop or to watch out for include the following:

• They may still need help in establishing spending limits.
• At some point they will want to make earning and spending decisions without consulting you. You can help them understand the trade-offs and consequences of their money management decisions.
• They may want to borrow from friends to satisfy their monetary needs—a practice that can end up costing them friendships. Help them plan so they avoid this problem.
• It’s difficult, in today’s world, to survive without a credit card. Help them apply for a pre-paid credit card and guide them in using it wisely, within the limits imposed by their own income.
• Involve them in preparing for their future education. Even if you intend to cover all or most of the expense, involving them in the planing will teach them to develop truly long-term objectives.

One of the most important lessons you can teach your children is the proper use of money. By beginning early, you can spare both your children and yourself a lot of conflict over money as they grow older. And you will set them up for a lifetime of successful money management.

Adapted, with permission, from Gold Start: Teaching Your Child About Money, written by Andrew Lendnal, Exisle Publishing, Auckland, New Zealand.