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Raising financially smart kids

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Type ‘teaching children about money’ into a search engine and most of the information you find makes the point that it’s seldom too early to start.

From a much earlier age than most parents think possible, children have the capacity to soak up financial lessons such as understanding the value of things, saving towards something rather than immediate gratification and that money must be earned.

Games such as playing shop or even old-fashioned marbles, where the coloured glass balls are the currency, can teach children important financial lessons.

Unfortunately other than the informal market of the playground where marbles or Stikeez substitute for money, most schools don’t formally teach young children ‘money’ or financial principles – it’s largely left up to parents.

What are the lessons you should be teaching your children? Most experts seem to agree on seven broad principles.

 Do you need it?

Something that you can do early on is to help children differentiate between wants and needs. Trapped in the supermarket isle of death leading to the tills, we’ve all seen children, or worse, experienced our own children, whining because parents won’t give in to incessant demands for sweets.

Rather than telling children you’re not buying them something ‘because we can’t afford it’, explain that you’re choosing not to spend your hard-earned money in that way. It’s even better if you can say why: ‘I’m saving some money so we can go to the movies together in the school holidays’.

Understand the value of money

Games such as shop-shop, where children ‘buy’ differently priced items with loose change or even marbles are a good way of starting to teach young children the value of money. As they get a bit older you can take the lessons to the real world and ask them to help you do price comparisons between items in the supermarket. Explain why you make the choices you do. For example, it may seem more expensive to buy a larger bag of rice or potatoes, but it’s cheaper than buying two smaller bags.

Using price-comparison apps such as pricecheck you can get older children involved in checking where you can get an item at the best price.

You control your pocket money

There’s no hard-and-fast rule about when to start paying pocket money, but there seems to be a general consensus that about age six is a good time.

Pocket money is an important step in teaching children financial responsibility. If you give them some money every time they want something, they may struggle to grasp the value of money and the basics of budgeting later in life.

Initially, pay children pocket money once a week. As they get older you can make this once a fortnight and later once a month. This will teach them to make it last.

Money is earned

Building on the lesson about understanding the value of money, children must be taught that pocket money is earned, not given. They can earn it for doing household chores such as making their bed, tidying their room or feeding a family pet.

As they get older and receive more pocket money, so their responsibilities should increase.

Learn to save

The accepted rule of thumb is that you should save 10% of what you earn. You can encourage younger children to put away some of their pocket money in a piggy bank each week. As they get older, open a bank account and suggest they try save some pocket money and also any additional income they may get, such as birthday money or income from part-time-jobs.

Teach them money management

Teach children to manage their money from the outset. If they want a toy, gadget or fashion accessory explain how they will need to save for it, possibly sacrificing other treats.

Help them keep a record of earnings and expenditure in a book or on a spreadsheet. When you pay pocket money look at the previous month and explain what they did well or how they might better have spent or saved their money.

If they do want to buy a big-ticket item such as a bicycle or surfboard and you lend them the money, getting them to pay it back in instalments over a given period will teach them how to manage debt.

Let them learn lessons

Suggest or advise, but you shouldn’t dictate how children should spend their money. Don’t be disappointed when they make mistakes. The biggest lesson they’ll learn is when they splurge on something and later realise that it was a waste of money. When they do, don’t bail them out. Let them make their own plan to supplement their income by doing more chores or getting a part-time job.

Teaching children about money and how to manage it are valuable life-lessons that they will be able to keep applying long after they’ve left home and have families of their own.

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