Helping Children Learn About Money
As a parent, you are one of the most influential people in your child’s life and there will come a time when you want to teach your children important financial lessons, and you definitely should. Understanding money is a really important life skill. Given how important financial skills are to navigating life itself, it can be surprising that more schools don’t teach money management from an early age – but it’s important that children learn how it all works and how they can manage their own money.
Children see money popping out of the machine in the wall or simply swiping a plastic card as a way of getting you the things you need or want – right now. However, kids do need to understand that mum and dad actually earn this money, you keep it in the bank and the bank keeps it safe for you until you need to use it. Every time you withdraw money or swipe your card to pay for something, it’s actually your own money and you now have less in your bank account than you did before … food for thought.
Where Does Money Come From?
Going back to the very beginning and explaining where money comes from is a great place to start the conversation. You could explain that you go off to work to do your job and your employer pays you every week, fortnight or month for example. You then have to use that money to pay for things like groceries, petrol and clothes. Once you have spent that money you earned, you need to wait until you get paid again before you can buy other things. It’s really important that kids understand that the money machine in the wall won’t just continue to pop out money if there isn’t any left in your bank account.
Saving
Ideally, you will be managing to save a little every time you get paid and it’s a good opportunity when you are talking to your kids about money to explain that you like to try to “save for a rainy day,” The rainy day might be something that you didn’t expect to pay for like a new car battery or a new heat pump at home. For them it might be a new tyre on their bike or new wheels for their scooter but it is good to be prepared.
Getting Your Kids Saving
If your kids want to start saving it’s a great idea to use a clear jar, not a piggy bank so they actually see the money grow by getting closer to the top of the jar – you can also put marks on there for the dates and goals so they feel a real sense of achievement as they reach each goal and feel encouraged to keep going. Equally, if they dip into those savings for something they just have to have right now, they will see the amount decrease again and it will take them longer to save for their goal.
Let them set a goal and save for it
Ask them to think about what they would like to save for. It can be a great way to focus on something specific and let’s face it, toys can be expensive!
Use the clear jar to mark on the dates and amounts and even percentages if they are a bit older so they can see their progress along the way. They will certainly appreciate it so much more when they have learned to save for it themselves and also appreciate the age-old adage when you tell them that “money doesn’t grow on trees!” They will learn to have a better appreciation of why you are careful with your money and often have to compromise.
Learning good habits from you
Before heading out on a shopping trip get your children to help you make up the shopping list - this is a really good habit to get into as it teaches them about having a purpose. If you’re looking for a more expensive item like a new fridge or a sofa, get them to help you by doing comparisons online with you and working out the difference in prices and any additional add-ons like delivery costs and warranties.
Understanding the Value of Money
A great way to talk about money is in practical terms. For example, if you’re going out for lunch, how much does the kids meal cost? How many hours/minutes would you need to work to buy the meal? It can also lead to bigger conversations around compromise. Do they actually need the kids’ meal with the drink which is $5.00 more than the standard meal or could they have a free water and do something else with the $5.00? These types of conversations really get kids thinking about how money works.
Pocket Money
The “pocket money talk” can be a real conundrum and everyone has their own ideas about pocket money. Some people have strong views on not “paying” children for being good but they are happy to give them pocket money for contributing to household jobs like hanging out the washing or unloading the dishwasher which becomes “their job”. You should decide what sits comfortably with your family values and work from there. As a general rule you should show them how to put aside 10% each week for their own savings so they have a little set aside for their own “rainy day” or something they would like to buy.
Older Kids
While you probably manage their bank account for them when they are younger, children also need to learn to manage their own bank account so it’s a good idea to give them the responsibility of a bank account at least by the time they are a teenager. They will learn important skills like how to read a bank statement and accessing their money when they need it with a bank card that arrives in the post.
Teach them the magic of compounding interest and returns and how long-term savings work using their own money to work for them. A great way to do this is to talk them through your KiwiSaver statement when it arrives and have a conversation about the increased balances, how much you have contributed, how much your employer has contributed and any fees that have been deducted.
The legal stuff
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