How to teach children about personal finance

It is very important to teach and coach children about money habits that will develop them into money savvy and responsible adults. In order to understand the economic challenges, and specifically, the economic crisis, we have to recognise that we all take part in the economic systems of our countries through financial institutions like banks, insurance companies, stock exchanges, property markets and general consumerism. The fact of the matter is that many people who find themselves bankrupt today can find a few clues to their present situations in their habits and behaviour to do with money, and then going more profoundly they can trace certain decisions and habits through their family heritage and how they were brought up. Please note that I am not talking about hard-working men and women who put money away while greedy and irresponsible people they placed in their confidence to guide and advice them misled them and speculated. The people who have gotten it wrong are those who have maxed out all their credit cards, who do not save at all, who live beyond their means, who try to keep up with the Joneses etc. Now that the scene has been set, then ways can be laid out to teach and coach children about money so that they don’t make mistakes that many make today. This information and learning is a legacy for the children empowering them for the future. Teaching children about money should be as paramount as for example teaching them to brush their teeth, because lack thereof will affect many aspects of their adult life including finding and keeping relationships. How can children be effectively taught about money? The answer lies in addressing the following questions:

WHEN:

Children can be introduced to money as soon as they learn to count. Its no secret that children learn fast therefore parents, guardians or siblings can start to throw in money concepts. Children’s games and playtime can include money or money concepts. For example, in exchange of toys you can play shop with them. However, it is important to know that children require a lot of repetition and patience to learn. As soon as you have started be consistent and teach them more and more concepts, terms and trends into their adulthood.

HOW:

There are many ways to introduce and teach children about money and these methods can be progressive according to the rate of their learning, curiosity and interactivity.

1. TEACH BASICS & CONCEPTS OF MONEY AND CURRENCY: The first stage is to help them distinguish different types of money, bills versus coins and then later nickels versus quarters or whatever currency available. Overseas holidays can also be interesting times to teach children about money as you exchange money and introduce them to foreign currencies. Note that role playing games can also be effectively used to attain the same goal.
2. INTRODUCE MONEY VALUES: Teach them money values, namely saving, growing and spending money. Give many examples from everyday life. For example: “Mummy and Dad work hard and put money away at the bank every month for summer holidays at the beach” has all three values. Putting money away = Saving, putting money in the bank = growing money (Please Note: For the purpose of this example it is recognised that this analogy is too simplified considering whether commissions are greater than inflation to make bank savings profitable). Lastly, summer holidays at the beach = spending money.
3. CLARIFY BETWEEN NEEDS & WISHES: Help children to understand the difference between needs and wishes. This is a tough part of this exercise because parents spend massively on children’s items from toys to food and clothes that are anything but essential. This activity requires the parent to encourage and dissuade children from over-indulgence. The parents who have gotten this part right are the ones who are not easily manipulated in shops by wailing children who want to over-indulge on non essentials. As a parent it is important to also observe your children and their interactivity with other children, people and things in order to pick the right moment to instil in them these values which in the future will make the difference between a diminished power of acquisition, blacklisted or on a positive note a stress-free life.
4. TEACH BUDGETING AND MONEY PLANNING: Goal-setting can be converted into a fun task for children when it is linked to festivals or periods of the year that are exciting for them like Christmas. Goal setting can be both a form of instilling discipline, making a lasting change or a reward. For instance, a child can be influenced to get excited when they are encouraged to save their coins in a piggy bank for Christmas and that the collected money will me matched for a nice toy. Other examples, are rewarding good behaviour like keeping their room clean the whole year or excellence like A’s for Math, Science and Biology, through money. It is important to make this reward more of a value than the actual amount of money. This gets children thinking and planning for when to save and spend money avoiding impulsive purchases.
5. INTRODUCE POCKET MONEY & ALLOWANCE: Introduce them to pocket money or allowance.This is an important and very practical lesson which can be used to implement the values above. The decision of the amount depends mostly on the averages of people in the community or town. Therefore it’s important to ask parents, teachers, community leaders and other social references and then decide. It is key to choose an appropriate amount and hand it out at an established frequency. Giving too much money, can mislead a child into thinking or assuming an inherited initial advantage over others without any effort and by establishing the rule to only give the money at a pre-established date, like weekly, the child learns to manage the money on their own keeping in mind that they will only get the next instalment at a predetermined time. Other than regulating the amount and the frequency, make it easy for the child to allocate funds for use and savings in a smart way. For example, if you are giving ZAR20 (South African Rands) then give the amount in two R10 bills so that the child can save one R10 bill and use the other. It goes without saying that the child will require to be introduced or advised in order to start applying this savings and spending plan.
6. TEACH HOW TO MAKE & KEEP RECORDS: This skill and habit can be developed in children who can read and write. Teaching children to make records of all they spend their money on and how much they are saving is a definite road to winning with money as an adult. This skill makes a child more conscientious while spending money, teaches them to keep receipts and can develop their vision to what they can possibly save for and finally buy with their savings. Give your child a gift of a journal to prompt this habit.
7. TEACH SMART SHOPPING: Get children involved in the buying decisions while on shopping trips. Tell them about why you use coupons, and how you calculate per unit prices, or how to take advantage of promotions. Before a shopping trip shopping lists must be made to enforce the values mentioned earlier of identifying needs and wants and not spending pointlessly.Get children to think and prepare the payment method whether it be money,check,credit card or debit card (knowing the implications of each method) to pay for their purchases and enforce the vigilance to check and verify change.
8. PRESENT THEM WITH SHARE GIFT:Single shares can be bought and given as gifts online or by fax or telephone.When presenting children with gift shares free ebooks with detailed explanations of what it means to be a shareholder are also provided.The companies offering these single shares offer a wondeful variety which allows the gifts to be chosen according to interests or hobbies.The shares are presented on elegantly framed share certificates and are stocks of impressively big companies like Amazon,Microsoft,Disney,Dreamworks,Ebay,Starbucks and more.The companies that sell these single shares do all the transfer and administrative work for you.The one share gifts are an excellent financial education because children can be taught to follow up the perfomance of their shares online.Find out your favourite companies here to present to your grandchildren,children or nephews and give them a head start in world finance and economics.The other welcome perks are the fact that some companies offer their shareholders,who the children will be if shares are bought in their names, some goodies during the periods of financial reporting.
9. START CHARITY AT HOME: Children like participating and most importantly imitating adults therefore get them involved in charitable events. Opportunities to engage in charity can be planned giving at church, in community projects, school activities and so on. For example, start off giving a child a coin to put in the Sunday collection plate, then later encourage them to allocate an amount for that from their savings. The same principles can be applied to being conscientious and instilling pride in them when it comes to giving tips and offering donations when they grow into adolescence and become young adults.
10. opening a bank account: This step is linked to some of the habits and mentality established above. A parent or guardian can open a bank account for a child in their names, and then later allow them control over it at an age the bank establishes. The great thing about a bank account is that allowances can be deposited automatically and the owner can autonomously control movements in and out of the account. This can teach children and particularly adolescents, maturity and the monthly bank statements can go into their records which they should diligently check and verify as they receive them. As they grow older, about 15 to 16 years old, introduce credit card concept, its pros and cons. Please Note: Introduce them to the concept not the actual plastic cards! In accordance with the legal age of the country to on a credit card, avoid being responsible for your child’s credit card and let them only get in their names when the have a job.
11. introduce them to taxes & investing: At the adolescent stage, or an age when they can understand and already dominate the other basic money concepts, parents can introduce the concept of taxes, interest and investments. Convenient opportunities to present the subject could be a weekend chat between parents and children as they read through financial parts of their newspapers or while watching the news, at the bank while speaking with the consultants and any other opportunity where the child can gather information, ask questions and decide how to apply it for themselves.
12. ALLOW THEM TO MAKE MONEY MISTAKES: Mistakes are an excellent teacher, especially when they don’t break a bank! Simply put, allow your child to make money errors while young and for small amounts so that they can know consequences of bad decisions and be better informed. Most importantly, the lesson is not to bail them out but to teach them the valuable lesson of responsibility. They will thank you later.

As mentioned earlier, teaching children about money management should be approached with the same seriousness of purpose as other types of behaviour and disciplines that parents are proud to have passed on to their children. Why? Simply because these skills and habits will better prepare them to make wise decisions at many crossroads in their lives. Encourage children to ask questions and get them involved in money decisions wherever it is possible. Then provide and show children and adolescents real-life examples of people who have succeeded and those who have failed by making good and bad money examples. There are tons of examples in families, communities, on the news etc. In the case that as a parent or guardian you don’t feel prepared or knowledgeable enough, talk to other parents, community leaders, consult financial experts for advice and read books about people who are financially successful. Finally, lead by example. Children and adolescents wont do as they are told for long, but they will do as they see. Remember to approach the subject as a confidence booster and not t scare children or make them have a complex therefore make he subject and activities fun and have everyone in the family participate.