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Teaching your child about personal finance

 
Tips for parents for teaching children financial sense.
By Andrea Vavruch

Pic: Shutterstock

You might think it’s too early to teach your toddlers about finance. But as soon as a child is old enough to yell, “I want one!” embarrassingly loudly in the sweet aisle, it’s time to think about imparting the basics of money management. As Christmas gradually approaches – accompanied by the usual overstocking of toys and other kid-friendly products – now is the time to start teaching your brood what money is and how it works.

This doesn’t mean going into complicated explanations of income tax, the stock market, or economics. Learning about money can be fun and simple, and you should keep it at a level your children can easily follow. Using just their pocket money and everyday experiences, you can help your child build the foundation for a financially responsible adulthood.

Talk about it

The next time you have to take the kids along when you go grocery shopping, make the most of the opportunity to teach them about responsible shopping. Point out the different varieties and brands of the products you buy. Explain why you chose one option over the other and ask them which one they would choose. Show them where the prices are displayed. They may not understand everything you try to tell them, but simply making them aware now that there are different brand and price options will help them develop into more critical consumers when they’re a bit older.

Whenever your children ask about money, be sure to give them a well-balanced answer. Find out exactly what they want to know and explain it in terms they can understand, using examples like sweets or toys to illustrate your point.

Remember that the younger the child, the shorter her attention span – don’t lecture and resist the temptation to keep going when you can see she’s losing focus. She’ll learn more from short, frequent chats than one or two long speeches.

While learning about money should be fun, there is one thing that should never be a game: at the ATM, don’t let your child press the buttons to make the money “appear”. The money you get from the ATM is not “free” – you worked hard to put it in there and your child needs to understand that.

Give them pocket money

Pocket money is a very important way for kids to learn about money. It gives them a sense of both independence and responsibility. Knowing that they will get a certain amount on a certain day helps them to budget and plan for the future. Pocket money should therefore be fixed and not tied to their usual chores or good behaviour, nor withheld for bad behaviour.
When your children get to school age, con
sider opening savings accounts in their names and paying at least part of their pocket money in to the bank. Not only will this help them learn how banks work, but it will also help to prevent impulse buys. A kid with ready cash in his pocket is likely to spend it on sweets or cheap toys.

Additionally, you could put part of the money into a special account that they are not allowed to touch. This will teach them to live on less than they “earn”, and will hopefully instil in them a lifelong habit of saving a portion of their income. Read through the monthly statements with them and show them how their money is growing. When they get older, start discussing wise ways to spend or invest the money.

Learn to say “no”

Letting your children make some mistakes with their money is one way of preparing them for the real world. Don’t feel the need to bail her out if she spent all her money in one go and doesn’t have any left for the rest of the month. And never hand out extra money “just this once” because you feel sorry for her
.
Be fair about the amount of pocket money you give, but don’t feel pressured to match your child’s pocket money to that of her friends. It is hard for children not to have as much money, but there’s no point putting the family’s finances at risk – or teaching your child materialism – just so she can keep up with Jones Jr.

If your child wants something particularly big that you’d be happy to buy for him, instead of paying for it outright, try going the half-and-half route instead. Tell him that you will match whatever amount he can save or earn. That way, you can still be a cool parent without losing a valuable lesson.

Encourage them to work for a bit extra

If you feel that your children’s pocket money is fair, but they start asking for a “raise”, use the opportunity to teach them about earning a living. It’s good for kids to have some household chores they have to do for “free” to teach them about family responsibility, but you can always negotiate that they will take on extra chores for payment. Or maybe there’s a once-off job that they can do for a bit of extra money. High school children can be encouraged to baby-sit or mow the lawn for neighbours and relatives.

Be a good role model

Children learn as much, or even more, from behaviour as they do from words. If your own purchasing habits don’t back up what you’re teaching, your kids will be unlikely to absorb the lessons you’re trying to impart. For your children’s sake, as well as for your own bank balance, be sure to practice what you preach.

Most importantly, keep it fun. A young child will be more interested in money advice if it involves a brightly coloured piggy bank, or a fun chart with stickers. Making money lessons short and age appropriate will get much better results. There’s no need to stress about their financial education: if you start young enough, you’ll have years to get the message across.

Andrea Vavruch is the Academic Officer at GetSmarter, an online education company that offers a number of financial and business related short courses. To see their extensive array of courses, please visit www.getsmarter.co.za

Disclaimer: The views of columnists published on Parent24 are their own and therefore do not necessarily represent the views of Parent24.

Have you tried something that works when it comes to teaching your children about financial responsibility? Tell us about it below:

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