Economically speaking, we live in uncertain times. The most learned economic minds in the world can’t predict the future and in an uncertain world we all want the peace of mind of knowing that our kids will grow up to be financially secure, fiscally responsible adults.
You can’t pre-empt what twists and turns the national and global financial markets may take, but you can help to ensure that whatever happens, your kids will be well prepared.
Even kindergarten age kids can benefit from laying the foundations of economic literacy to ensure that they grow up understanding and appreciating money and the role that it has in their lives.
Here are 7 ways that you can help them, from cradle to college, deal with tomorrow’s financial problems today!
When you think of introducing children to money it’s easy to think of poor, bewildered Michael Banks in Mary Poppins who’d much rather buy bird feed. The concept of saving can be alien and confusing to a young mind. Why would anyone delay the instant gratification of having something they want? The good news is that you can introduce your children to the notion of currency while still allowing them to have fun.
Our reliance on internet banking, credit cards and online shopping, it’s easy for kids to think of money as something mysterious and ephemeral. Make sure they see you exchanging notes and coins to give them a sense of transaction. If they want to play at being store clerks (as many children do), try using real coins, not toy plastic coins to get them to understand and quantify money.
Saving, it can be fun!
While many parents give their kids an allowance, it can be difficult to know when’s the right time to start introducing them to money that is theirs. Even from the age of three children can be introduced to the prospect of owning and handling their own money.
Giving them their own pocket money too late in the game can lead to them seeing it purely as a way to facilitate their own pleasures and not a valuable commodity. While there’s nothing wrong with encouraging them to spend their money on things they want, it’s vitally important to introduce the notion of saving too.
If they happen to want something outside of their weekly allowance then you can incentivize them to save for something they really want by matching their contributions.
This will also make conversations about pensions easier to digest later in life.
Saving is a great way to get kids to appreciate the pleasure of deferring their gratification in the pursuit of long term rewards.
Everything has a price
How do we know good value for money when we see it? What provides us with a sense of outrage if we’re ripped off?
For most of us, the notion of good value for money and poor value for money is normative so by the time your kids get to junior high they should have a baseline established for the value of day-to-day items.
Taking them shopping and quizzing them on the value of your purchases is a great start which you can follow up on by sending them out on errands to pick up a loaf of bread or a quart of milk.
This way, by the time they start to covet games consoles and designer shoes they will have a good understanding of their intrinsic value.
Budgeting. It’s never too early
Our ability to manage our household budget can make or break our household finances, and as such it’s a vital skill to instill in young people early on.
You can get this off to a great start by making sure that they always get their allowance on the same day (say, a Friday). This will accustom them to the notion of a payday and the temptations they represent. Sure your kid may want to blow their whole allowance over the weekend, but when the next thing they really want comes along (and it will) that money will be missed.
Get them to keep a ledger of their expenditure to give them a sense of ownership over their own spending. It’s incredibly important to stay strong when implementing this strategy and not to ‘chip in’ to compensate for their reckless spending no matter how much they cry or beg.
Be open, transparent and (most importantly) consistent about what you will pay for and what they will pay for.
You may feel that it will be instructive for them to give them a short-term loan which is absolutely fine for older kids. Just make sure that the terms of repayment and repercussions for missed payments are established, understood and stuck to.
Ah, that first job!
Most of us remember that first job where we flipped burgers, washed dishes or waited tables and for most teenagers it’s an important rite of passage. We can all remember the honest enthusiasm with which we attacked our first job, intoxicated by the prospect of earning our own money to spend on whatever we want before the responsibilities of rent and bills kick in.
We probably also remember how quickly we became disenfranchised as we faced the harsh realities of low wages, obnoxious bosses, difficult customers and long hours.
Encourage them to stick with it as their enthusiasm wanes and get them to share their goals with you (that first car, or even a deposit on their own place). The most important thing to do as a parent is to try and resist the urge to control what they spend their money on. They may well waste their hard owned money but it’s an important and instructive mistake to make.
The Family Finances
Children, especially teenagers, have an odd tendency to assume that their parents are infinitely wealthy and holding out on them just for the sake of making their lives more difficult. It’s important to nip this thinking in the bud right away and the best way to do it is by being as open and honest about the family’s finances as possible.
Rather than just answering “we can’t afford it” next time they ask for something, qualify it with an explanation why, to make sure they understand there’s no agenda against their happiness.
The simple truth is that most kids aren’t spoilt or obnoxious, they’re simply ignorant of the many costs that go into keeping a contemporary household running. Breaking down the mortgage/rent, utility bills, phone and internet bills, tax and weekly food costs for them will give them a much clearer understanding of the concepts of monthly commitments and disposable income.
It may come as a surprise for them, but it will likely send them into adulthood with a greater understanding of the household costs they can expect to bear.
College- The acid test
As your kids leave the nest and take the first steps towards making a life for themselves, that’s when all this training (theoretically) kicks in. Hopefully they’ll leave the home with an understanding of the value of money, how to save and the importance and benefits of budgeting. Hopefully they’ll have worked over the summer in order to save up a little emergency fund (though they’ll probably consider a new TV an emergency).
If, like many undergraduates, they have a student loan it’ll be easy for them to be reckless when faced with the prospect of more money than they’ve ever had before. Make sure that they understand how long that money is supposed to last them. Graduate debt is a very unfortunate reality that many students are lumbered with and an understanding of the scale and importance of that debt is vital to instil in them.
Banks can be almost vampiric around students, luring them in with what seem like great incentives and it’s important to make sure that they’re savvy to this. Make sure that they have a good understanding of interest rates, overdrafts and the caveats of credit cards.
Stay the course
Hopefully by making a few small changes early on you’ll be sewing the seeds to ensuring that your children (however young) grow into happy, secure and financially responsible adults. The greatest gift you can give them is consistency, from cradle to college.
Let them make their own mistakes (without condoning or condemning) and always be on hand to provide moral support and advice when it comes to correcting them. As tempting as it may be to bail them out when they show genuine contrition you’re simply impeding their development and understanding in the long run.
On the other hand, be sure to reward good behavior when they manage their finances well, and try to join in their sense of enjoyment and fulfilment when their saving and financial restraint pay off.
Remember that the foundations you lay in childhood will help them avoid the pitfalls of credit cards, subprime mortgages, payday loans and all the other financial landmines that can prove damaging to less financially aware adults.