Teach your children the value of money
Learning the value of money makes it easier for children to develop good money management, says Alexander Forbes certified financial planner Mandy Porter
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 witness how their parents interact with money, so demonstrating the value of money is vital,” she said.
Pay cash, not card
Porter said one way of demonstrating that money has value is to pay with cash when your children 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.” Teach financial restraint by not giving into your child’s every wish.
Allowances provide practice for money management
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. 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.” Teenagers experience peer pressure, wanting things their friends have. “But the lesson to be learnt is whether or not I can afford what my friend has. And If I can’t, then I have to learn to wait until I can afford it.”
Porter said parents need to 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.”
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.”