Gone are the days when doling out pocket money was good enough to teach your children the basics of finance and budgeting. Think smart by thinking ahead, and you can start your children on the pathway to long-term financial peace-of-mind.
I was playing a game with my children using idioms, and I asked my boys what they thought “he’s only out for the money” meant. My eldest looked very solemn and said “he is only interested in money”, while my youngest’ s eyes lit up as he said: “He is very rich”.
My youngest son has been a fascinating experiment in teaching children about money. Being very materialistic and having a great interest in spending and acquiring money, he has been the perfect subject of my money teaching experiments and has formed most of my principles around teaching children about money.
Let your child bank on a brighter future
Saving money in a piggy bank is a tangible way to teach children about money and the actual value of coins and notes. But there does come a time when a bank account is more appropriate.
A money box never encouraged my son to save. Being able to see the money burned a hole in his pocket and he was desperate to spend whatever was in it. When he was about 8, I opened a bank account for him, and his behaviour shifted immediately. It was a matter of “out of sight, out of mind” and he started to want to grow the money. By adding birthday money and saving his pocket money, he has saved R1,300, rather than wasting it on sweets and cheap plastic toys.
A bank account teaches children about banking, and you can turn it into a family project. Help your child to research bank accounts and to understand the most cost-efficient way to bank.
Set some cash aside for unit trusts
We took the bank account a step further by linking a savings account where we transfer any birthday money. In order to spend it, he has to transfer the money to his transactional account, so this further encourages saving. Recently he actually asked me to transfer some of the money from his bank account into the savings account so he didn’t spend it!
For older children who may have longer-term goals, an investment account linked to the stock market can be an excellent way to learn about long-term investing. If your teenager has a holiday job or a weekly part-time job, encourage them to put R200 to R300 into a unit trust each month. Even if your 16-year-old saves just R200 a month into a unit trust, and it grows at 12% a year, it could be worth as much at R17,000 by the time they turn 21.
Teach the value of chores
It’s important to give children money they can spend themselves, so they understand the relative value of money. Each family has different views on this, but I want my children to learn the relationship between work and money, so they have chores they need to complete each week.
Making their beds, keeping their room tidy or hanging up their towels does not earn them pocket money – those are expected as part of good housekeeping. The pocket money is for things they do for the family – walking and feeding the dog (they score extra money for the poop scoop!), un-stacking the dishwasher, washing dishes and laying the table.
Children need to be savvy shoppers too
My son has become a whizz at online shopping and finding stores that are offering sales. He has learnt to do price comparisons before spending, and the idea of “shopping around” means he doesn’t buy the first toy he sees. Often, by the time he has shopped around, his interest in the toy has diminished.
But recently he graduated from active shopper to pro-active consumer. He decided to use some of his pocket money to buy one of those cheap remote control flying balls . We warned him it was going to break easily. We were right – it was already broken before he even opened it.
The following weekend he asked me to please take him back to the shop – he had kept his slip and wanted to ask for his money back. He walked straight up to the store manager and explained the situation. When the manager asked if he could replace the toy, he said “No, I want my money back please”. He got back his R109 and said “This is a very good store; I will buy from here again”. Consumer lesson learned!
Bring your children into your world. Take them grocery shopping and teach them how to calculate relative pricing. Let them work out which brand of tinned tomatoes, or packet of toilet paper is offering the best value.
Work towards a money goal
Goal setting is one of the best ways to teach savings. It is very difficult to explain to a young child that they must “save for the future”, but if they have a specific goal in mind, help them research and work out how it will cost and then encourage them to save for it.
This was how I shifted my son’s mindset from spending to saving. Once he had a goal (an electric car set in his case) he became obsessed about saving his pocket money and trying to find ways to earn more cash.
Budget some time to budget together
Children learn best from example. You can’t teach your children to budget if you’re not doing a household budget. Discuss the household budget with your children and if appropriate allow them to give ideas towards how to allocate that budget. Holidays are a great opportunity to involve children in budgeting. Set aside an amount that the family can spend over the holiday and then research activities or ways they’d like to spend it.
We are not quite there yet but the teenage years become a wonderful way to teach children to work with a budget. Sit with your teenager and calculate how much they need each month for toiletries, clothing, airtime and entertainment. Give them a monthly stipend for day-to-day spending. In the first month they may blow it all on airtime, but within a few months they will have learnt to make the money last – as long as you stand your ground and don’t give them extra cash!
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