Teaching Children About Money

Monday, December 1, 2014

The best way to learn something is to learn it as a child. The best musicians, artists, dancers, and second-language speakers I know all learnt their skills from a young age.

For example, one of my old housemates would call her Nonna every week and speak to her comfortably in fluent Italian. Her mother taught her as a kid. She started early, kept learning as she grew up, and now as an adult she’s easily able to do something that’d take me years of study.

The same idea applies for money management. Teaching children from a young age is a lot better than leaving it for them to figure out on their own as teens or young adults.


Money is a very real thing

Once upon a time, actual money was everywhere.  Pink, blue, red, and yellow notes were stuffed into wallets and handed out at checkouts. Loose change hid in jacket pockets and couches across the world.

But then came the era of credit and debit cards, and money lost much of its visibility, making it harder for kids to naturally pick up on the principals of ‘in vs out’, where earnings must add up to more than expenditure.

An easy way to teach this lesson is to simply ignore the trends, and make a point of revisiting the days of paper money.

Try this: make a substantial withdrawal of cash one day and use the money at the shops, the doctor, anywhere you might need to make a payment. Discuss the weekly budget with your children and let them see you handing a sum of money over and getting less, or none of it back in change.

They’ll soon work out that ATMs don’t just dispense infinite amounts of money and cards don’t hold unlimited amounts - you can only spend what you have.


From little things big things grow

It’s very easy to disrespect the humble 5, 10, and 20-cent pieces, given how little can be done with them these days. But it’s important to show kids that if they watch the cents, the dollars will follow.

One father I know did this in very impressive fashion.

He simply set up an empty lolly jar on a hall table and then emptied the coins from his wallet into it every night when he got home from work. Not the gold, just all the silver.

Then, when it was time for the annual show and his kids were planning their showbag purchases, the father invited them to count and share the money he’d added to the jar. Needless to say, they were astounded at how much was in there and the message hit home: every cent matters, and it all adds up.

To this day, these kids, now parents themselves, both still have a spare change jar, and though they no longer buy showbags with the money, it always comes in handy for school excursions and small essentials.


You’re never too young to start saving

If your children start saving from a young age, it’s more likely to become a lifelong habit that will promote security and stability in their adult lives. One of the easiest ways to do this is to tie it into their pocket money.

For example, if they receive $10 a week you could make it a rule that they must bank $2 regardless of whatever they have planned for their money. Give them a way to keep track of the balance as it builds, and make a point of highlighting any interest to reinforce how money can grow.

That said, don’t insist that they can never use the money they’re saving.  When there’s something extra special they have saved for, let them buy it.

More than anything, it will illustrate how saving works and that wonderful feeling of being able to save for something you want or need without having to borrow money or go without.


The best way to get money is to earn it

Most children will grow up performing some sort of chores around the house in return for pocket money, whether it’s simply keeping their room tidy or doing the dishes every night.

The next step is to set up a system where they can earn extra money for chores you wouldn’t normally ask or expect. This could be washing a car, performing a day of gardening for their grandparents, or sorting out an entire pantry. The trick is to introduce it at a time when they are hankering for something special, say a new games console.

You could sit down with them and work out how long it would take them to afford with just their regular pocket money. Then work out how much quicker they could do it with the addition of some extra chores.

It’s a great way of ensuring your children learn that hard work brings rewards.


Keep track of where your money goes

Encourage your children to keep a notepad, collect receipts, and write down everything they spend in a day.

Some days there’ll be no entries and others there will be many. This process allows you to sit down with them periodically, and identify spending patterns and traps.

You’ll quickly be able to show them that it’s often not the big-ticket times that can crunch cash flow but the smaller ones, like the daily lollies from the tuckshop, that can really add up.

Teaching children the basics of respecting money will set them up to be financially-savvy adults. Learning about responsible spending and saving habits will help them live happy, prosperous and secure lives - and, if we’re lucky, we might learn something along the way too!