It's almost time for the kids to head back to school, but kids don't have to be at school to be learning. Did you know that our first lessons in managing money generally come from the home? From pocket money to piggy banks, here are some simple tips for helping your kids learn about money.
Good habits start early
Some people may think children are too young to be taught about money, but young children often develop an early fascination for coins and mimicking the transactions they see their parents conducting. Have your young children ever collected coins in a coin purse and played supermarket games with their friends?
As parents or guardians of young children, there are some simple ways you can harness their natural interest in money and give them the opportunity to develop their knowledge and understanding of basic money concepts.
Set a good example
Many of the financial habits that we carry into adulthood are learned in the home. It follows then, that by teaching young children good habits about money, we can help them to become better money managers later in life.
It's important to remember that as a parent or guardian of young children, you're their coach and role model when it comes to money, so practise what you preach. If you have good habits when it comes to your personal finances, those habits will make an impression on your kids...but so will the bad ones!
Take a moment to think about the financial example you're setting for your children...
Do you have a good idea of what you've got in the bank on any given day or do you tend to 'wing it' from one payday to the next?
Do you pay your bills in full and on time, or do you wait for overdue notices to spur you into action?
Do you feel as though you have your debts under control, or are your debts controlling you?
With your children learning from your every money move, is there anything you'd change about how you and the other adults in the household manage money? If so, now might just be the time to make some positive changes.
The first encounters
Money is an integral part of our lives and a child's awareness of money may start younger than you'd think. By the time a child has reached four or five years of age, their money encounters might have included:
watching parents use cash to pay for every day items;
watching parents withdrawing cash from ATM and EFTPOS outlets;
incorporating play money, or real coins, into their role-playing games;
excitedly finding a coin in the street;
putting money in their piggy bank;
receiving coins from the Tooth Fairy or Santa;
using 'lunch money' to purchase food from the school canteen;
receiving pocket money.
While children this young are not up to conducting financial transactions on their own, and while they'll have a very limited grasp of concepts surrounding money and transactions, simply by watching and mimicking their parents, and through various cultural traditions, they are already familiarising themselves with money.
Let the learning begin
In the early years of school, children generally begin to develop a clearer understanding of money, what it's for, and how it works, and you can help them develop this knowledge.
Quality, not quantity
As a starting point, try teaching your children what the different coins are and what they are worth relative to each other (e.g. five twenty cent pieces equal one dollar). You can make it fun for them - use the animals and other pictures on the coins to help them identify each different type.
Very young children will often think that the bigger the coin, the greater the value. In addition, quantity is often mistaken for greater value; four twenty cent pieces may seem more valuable to a child than a one dollar coin. But from around the age of six, most kids start to get the hang of it.
Making a transaction
Once your child has an understanding of each coin's relative worth, you can try giving them some money responsibility next time you go shopping. Select one item that the child is allowed to pay for. Give them some coins, and help them to work out which ones will be needed to purchase the item. This will not only let them practise getting to know the coins, it will also help to foster an early understanding of the need to pay for every day items.
The family and money
Once children have started school, it can also be a good time to start involving them in some basic family money discussions. However, bear in mind that it's important not to burden them with any financial worries you may be experiencing.
Remember, this is just the preliminaries. Keep the concepts very simple. For example, let them know that you have to plan how the family's money will be used, and that your family budget helps you to do that. And while there's no need to be specific about dollar amounts, you can share with them the idea that the adults in the family have to work to earn money, and that the money is used to buy various essential items for the family.
You can also explain to them that left over money can be set aside and saved up for special items that the family can enjoy, such as a holiday, or a trampoline, or bikes for a family bike trip.
However, while most children of around six or seven years of age might be starting to understand that adults go to work to earn money, and that they use money to pay for items, be aware that their understanding will be limited. For example, many children of this age will still see family's money supply as seemingly endless. They are unlikely to be able to grasp the notions that there is often a limit to what can be earned or that money can run out, or the implications of the latter.
Pocket money - an early lesson in income
Pocket money is more than just a few loose coins once a week - it's also a very early lesson in receiving an income. Once a child starts school, it may be a good time to start thinking about giving your child a regular income in the form of pocket money.
To earn or not to earn?
Some experts argue that the most powerful kind of pocket money is that which must be earned. Certainly, if the child must do certain chores around the house each week in order to receive their pocket money, this can provide a vital lesson in life: money must be earned...no work, no pay! This can also help to instil the intrinsic value of money.
In addition, many people believe that pocket money should not be linked to tasks that the child would normally be expected to do anyway (such as good behaviour, keeping a tidy room). Instead, link the pocket money to extra, additional tasks that you feel are deserving of a reward. Needless to say, these will depend on the age of the child and what they are able to do. You will be the best judge of what your child is capable of and what is reasonable to expect of them.
On the other hand, some argue that a certain basic amount should be given to a child simply because he or she is a valued member of the family. Some parents do a bit of both, giving a base amount to their children each week with no strings attached, but also giving them the option of earning extra pocket money by doing special chores. Ultimately the decision is yours.
Talking pocket money
Involve your children in discussions about their pocket money - after all, it's going to be their money! You might make the main decisions, but it's important to ensure they understand what the pocket money is for, as well as any conditions that may apply. So...
Get their input and agreement on which tasks will earn them pocket money (or bonus pocket money, depending on what sort of payment system you're using). And remember, you set the standards in terms of which things are expected of them automatically if you believe pocket money should be for extra tasks that deserve reward.
You could also agree to rotate the tasks each week or month among your children, so that everyone gets a share in the jobs at hand.
Depending on how old the children are and the concepts you feel they are able to grasp, you could also talk to them about saving a certain portion of their pocket money each week. Get their ideas on what they'd like to save up for, and help them create a mini savings plan.
Trouble shooting
Above all, don't bend on your agreements. If you are paying pocket money for special chores, ensure that if the work is not done, the pocket money is not paid. If the child spends all the pocket money and asks for more, try not to relent. It's important for children to learn that money is a resource that must be earned and used wisely...or in the words of our own parents, that "money doesn't grow on trees". If they find themselves missing out because they've over spent, why not encourage your kids to create a budget for themselves so that they can accommodate the bigger items they'd like to buy and avoid over spending.
Of course, it may be that you think it's time to give your child a raise. As they get older, the amount of pocket money you pay them will probably increase, as will the number of tasks they are able to perform around the house in order to earn the pocket money or bonus pocket money. It's okay to give your children a raise when it's warranted, but make it clear that they'll need to set aside a correspondingly higher amount as savings.
Piggybanks - an early lesson in saving
Just as pocket money is an early lesson in earning an income, the humble piggy bank is many children's first lesson in saving money to reach a goal. When discussing pocket money with your children, why not also encourage them to save? You can help your child to establish a good savings habit by getting them to save a certain percentage (or all) of their pocket money each week.
Firstly, talk to them about what they'd like to save up for - be it a DVD, an art kit, a musical instrument, or a bike. As is the case with most of us, having a goal in mind provides the incentive to save.
If you can see that the item will be out of reach for their limited resources but you would still like to see them save for it, you can offer to match a certain portion of their savings, or make up the difference, providing they stick to their own savings plan. For example, you might want to contribute fifty cents for every dollar they save. This can help to reward their good savings habit, and keep them enthusiastic.
The next step
As the amounts being saved become more serious, older children can be introduced to the idea of using a savings account with a bank. Many financial institutions now offer fee-free savings accounts for children which also pay interest as an extra reward for disciplined savers.
Are your kids too old for piggy banks and pocket money?
If your children are past the preliminary stage when it comes to money, stay tuned for next month's MoneyMinded fact sheet, where we'll be looking at some of the money challenges that adolescent children and young adults may face, and some tips for tackling them.
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