Teaching children at a young age to appreciate the value of money will help them to grow up as financially-responsible adults. The question is, how to instil these values in them, especially when sometimes parents themselves do not always practice the best money habits?
Alexander Forbes Senior Financial Planner Jeff Spiller, shares 5 ways you can teach your kids the value of money.
Talk about money
Talking about money in a calm, relaxed way and making use of everyday opportunities to demonstrate healthy financial habits is vitally important. From a young age children will be witnessing how you interact with money, so demonstrating the value of money is vital.
Pay with cash, not card
One way of demonstrating that money has value is to pay with cash when they are around. Paying with a credit card sends the message that anything is available just by swiping a magic piece of plastic. Have a conversation about items which you consider essential versus luxury, just-for-fun items. Explain that it is not good to spend more money than you earn and that if you want something, you need to save for it.
Give them allowance
One of the best tools for teaching children money management is pocket money, or an allowance. Experts differ on the age which this can start, but it is generally accepted that six is a good age. Start off with a weekly allowance for young kids and increase this to a monthly allowance for teenagers so that they can be challenged to make their money last. Tie the granting of an allowance into basic household chores, so that your child understands that you have to work for money, it does not simply get handed out. Talk to your children about what types of expenses you cover – electricity, food, house and car – and explain how they might spend their own personal allowance.
A good tip is to divide up the allowance and cash birthday presents into a portion which can be spent immediately, with the rest being put away for the future.
Remember those piggy banks you had as a child? If you don’t have one of those even a jar with a slot in the lid can work as a savings tool for a young child. By the age of nine, a child can open their own bank account, and by the time they start high school, they should understand the concept of long-term saving for a specific item they covet. This helps to make the idea of saving less abstract.
Set strict money rules
If they spend their pocket money within the first week of the month, do not grant them a loan. They should experience for themselves the consequences of being a spendthrift.
Keep teaching
As your kids grow older, explain new concepts to them such as borrowing, interest and investing, using real life scenarios. For instance, if you go overseas, use this as an opportunity to teach your pre-teens and teenagers about the exchange rate and different currencies.
Living a financially smart life is something which should be inculcated from a young age, while at the same time we are never too old to change our own money habits.
