— with financial expert Adrian Raftery
It’s never too early to learn valuable financial lessons.
Most parents think that children are too young to understand the concept of money, but you’d be surprised at how much they learn just by watching you.
When I met Michelle, she said her kids didn’t receive pocket money. I told her that giving them a small amount of pocket money can help them learn about managing their finances.
If they have an income, it allows them to practise spending, saving and budgeting. It’s an important lesson they must go through in order to be more careful when they’re older.
I told Michelle to ask the two eldest (Lauren and Matthew) for some saving goals. Matthew wants a new bike, and Lauren wants an iPod. I got them to start shopping around and looking at the prices for these items. By doing this, they realised the prices varied by as much as 20 per cent.
I developed a budget with them, towards saving for these. They’d need to put aside some pocket money each week.
We also needed to dangle a carrot for their savings plans. How would they feel if they got the opportunity to earn extra pocket money? I told Michelle not to pay the kids extra for doing their general chores, but reward them for tasks such as washing the car or cleaning windows.
Finally, we got the kids to open a savings account which pays eight per cent interest. It’s important they see that money can make more money by earning interest.
- Put money into a savings account. Open a small account for them and get them to put any birthday money into it. Teach them the benefits of interest and that “money can make money”. They can each earn up to $1667 per annum before the taxman wants to tax them.
- Give them pocket money. It doesn’t have to be much. You just need to start getting them to learn about spending, saving and being responsible with money.
- Help set some savings goals. Motivate them to want to save for a future purpose. Sometimes it’s good to get them involved in your own savings goals (eg, house, car) so they can learn first hand from you.
- Give extra opportunities to earn money. Give them the chance to do extra chores around the place. This teaches them the value of hard work.
- Take them shopping. Most parents think this is the worst thing to do, but it can be a great educational tool for them to see you shop around for bargains. Get them involved and ask them to look at the price of items.
- Savings chart. Get them to chart how much they are saving each week, and help them visualise the benefits of saving.
- Let them ‘fall off the bike’. Kids need to understand the important lesson of losing money so they appreciate it more in the future. It’s better to learn at a young age rather than later in life.
- Show them the household budget. Show what bills are being paid and their cost, and what money is coming in to pay for the bills. It helps give them a better idea of money management.
- Simply say no. When they put on a performance at the shops and want something, tell them they have to wait, save up and shop around before they can get it. This gets them out of the habit of impulse purchases, which should stay with them later in life.
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