You taught them how to read and how to ride a bike, but have you taught your children how to manage money?
Given how important financial skills are to navigating life, it’s surprising that our schools don’t teach children about money and proper money management.
As a parent, however, you can teach your child important financial lessons — and you should.
“Look at the financial crisis and how many families have lost almost everything and are on debt counselling. Look at the amount of money we owe in debt. South-African’s and debt – it’s worse than it seems.
It’s pretty clear that adults don’t know much about money. To help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught the essentials about money,” says Beth Kobliner, author of the New York Times bestseller Get a Financial Life, and a member of the President’s Advisory Council on Financial Capability who spearheaded the creation of Money as You Grow, which offers age-appropriate money lessons for children.
Kobliner says children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service revealed that kids’ money habits are formed by age 7.
Break the link between spending money and instant gratification
Many parents fall into the pattern of rewarding young children for good behaviour during shopping trips with treats or toys at the end of the ride. But it’s important to break the association between shopping, spending money, and receiving rewards. Help your children understand that not every shopping trip is about them “The sooner parents start taking advantage of everyday teachable money moments (for example, give a six-year-old R10 and let her choose which fruit to buy), the better off our kids will be. Parents are the number one influence on their children’s financial behaviours, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers,” she says.
Most important money lessons to be learned at each age, as well as activities and printable charts to help you teach your children each point.
“This is a hard concept for people to learn of all ages,” says Kobliner. However, the ability to delay gratification can also predict how successful one will be as a grown-up. Kids at this age need to learn that if they really want something, they should wait and save to buy it. Money lessons at this age set the tone for later on. “You really can’t start too early,” says Kobliner. Speaking of her own family, she says, “When we go into a store, if I say, ‘We don’t have money for this,’ they’re smart — they know we have credit cards,” So, she would say, “We’re here to buy a gift for X, and we’re not going to buy anything for you, because we’re not here for that.” Kids then quickly learn that going into a store doesn’t always mean you’ll buy something.
Practical activities for Ages 3 to 5
1. When your child is waiting in line, say, to go on the swings, discuss how important it is to learn to wait for what he or she wants.
2. Create three jars – each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, whether for doing chores or from a birthday, divide the money equally among the jars. Have him or her use the spending jar for small purchases, like a treat or a small toy. Money in the sharing jar can go to someone you know who needs it or be used to donate to a friend’s cause. The saving jar should be for more expensive items.
Have your child set a goal, such as to buy a toy. Make sure it’s not so pricey that they won’t be able to afford it for months. “Then it just gets frustrating, and it gets hard for them to wrap their head around. It’s really more about her being cognizant that she’s saving for a goal than, ‘Oh, I really need her to scrape together those R50 to buy the tutu.’ You want to set them up for success,” says Kobliner.
If your child does have an expensive goal, come up with a matching program to help her reach it in a reasonable timeframe. (Kobliner says that while an allowance is a personal choice for every family, at this age, a small allowance could help a child save for these goals.)
Every time your child adds money to the jars jar, help her count up how much they have, fill in the Deposit / Withdrawal sheet and their Monthly Budget, and then talk to them about how much they still need to reach their goal, and when they will reach it.
Also talk to them about who they would like to help or have helped with their Share Money. Teaching Kids from a young age to ‘Pay it Forward’ is another amazing habit that can go a long way. “All those behaviors are really fun for kids,” says Kobliner. “And it gives them a sense of the importance of waiting and being patient and saving.”
At this age, it’s important to explain to your child, “Money is finite and it’s important to make wise choices, because once you spend the money you have, you don’t have more to spend,” Kobliner says. While at this age, you should also keep up with activities like the saving, spending and sharing jars, and goal-setting, you should also begin to engage your child in more adult financial decision-making.
Practical activities for Ages 6 to 10
1. Include your child in some financial decisions. For instance, explain, “The reason I chose the ‘no-name’ juice rather than the brand name is that it costs R3 less and tastes the same to me,” says Kobliner. Or talk about deals, such as buying everyday items like paper towels in bulk to get a cheaper per-item price.
2. Give your child some money in a supermarket and have her make choices about what fruit to buy, within the parameters of what you need, to give them the experience of making choices with money.
3. When you’re shopping, talk aloud about how you’re making your financial decisions as a grown-up, asking questions like, “Is this something we really, really need? Or can we skip it this week since we’re going out to dinner?” If they see us being responsible and less wasteful about spending money on small things it could make all the difference.
At this age, you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of interest, when you earn interest both on your savings as well as on past interest from your savings.
Practical activities for Ages 11 to 13
1. Describe earnable interest using specific numbers, because research shows this is more effective than describing it in the abstract, says Kobliner. Explain, “If you set aside R500 every year starting at age 14, you could have R30 600 by age 65, but if you start at age 35, you’ll only have R18 000 by age 65.”
2. Have your child do some interest calculations. Here, she can see how much money she’ll earn if she invests a certain amount and it grows by a certain interest rate. And have her read this inspiring example of someone who used investing and interest to his advantage incredibly well.
3. Have your child set a longer-term goal for something more expensive than the toys she may have been saving for. “Those sorts of tradeoffs, called opportunity costs — what are the things you’re giving up to save money — is a very useful thing to talk about.
At this age, kids are trying to not save because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision,” says Kobliner. For example, she says, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward a new tablet or a new phone.
Do research on the university websites to see how much each costs, and be sure to include other expenses besides tuition. But don’t let the price tag discourage your child. Explain how much more university grads earn than people without degrees, making it a worthwhile investment.
Practical activities for Ages 14 to 18
1. Discuss how much you can contribute to your child’s university education each year. “Every parent should start the university cost conversation by ninth grade,” says Kobliner. “Tackling the subject early and being honest about what your family can afford will help kids be realistic about where to apply.”
But remember that there are many ways to finance university other than with your own money. And in no way should your child lose out on a first class education when they have the ambition for it because of their financial situation. With your child, look into which schools are generous with financial aid or assistance, how much of it is in “free money” such as grants and scholarships, how much is loans that your child will have to pay back, and what government programs can help pay back those loans, says Kobliner.
2. Help your child compare how much each university costs, what the employment prospects of graduates are, and how much student loan debt could affect your child’s lifestyle after graduation if he or she attended that university. As with any investment, analyse together whether the money put in will pay off in the end.
This is your child’s future, it does not get more important than this. And even if you are willing and able to pay your child’s university fees in full, studies have shown that your child is more likely to do well and push through when they have something personal invested in their studies as well, as their ‘own’ money.
“Parents should absolutely make their university kids get a part-time job,” says Kobliner, adding that research by Dr. Gary R. Pike of Indiana University-Purdue University Indianapolis shows that students who work 20 hours a week or less at on-campus jobs get better grades because they’re more engaged in student life. “But limit those hours!” she says. “Working more than 20 hours per week can hurt kids’ academic success.”
It is all too easy to slide into credit card debt, which could give your child the burden of paying off credit card debt at the same time as student loans. Plus, it could affect his or her credit history, which could make it difficult to, say, buy a car or a home, or even to get a job. Sometimes, prospective employers check credit.
“The average household owes almost double their income in debt. To reverse the trend of spending beyond our means and racking up thousands of rands a year in interest, it’s critical that parents teach their kids how to use credit cards responsibly (or better yet—not at all or as a savings account!),” says Kobliner.
Practical activities for Ages 18+
1. Teach a child that if a parent co-signs on a credit card, any late payment could also affect the parent’s credit history.
2. Together, look for a credit card that offers a low interest rate and no annual fees.
3. Explain that it’s important not to charge everyday items so that way if you have an emergency expense that you can’t cover with your monthly income, you can use your credit card. However, even better is building up at least three months’ worth of living expenses in emergency savings, though six to nine months’ worth is ideal.
Have any tips of your own that you could share with other Moms? Some Money Management advice that worked for your family – please share!