TEACH YOUR CHILDREN WELL - PART 1: EARLY CHILDHOOD
Teaching children financial responsibility and independence should be high on any parent’s priority list. This article aims to guide parents in helping their children become more financially savvy at different stages of their lives.
As parents, we take on the responsibility to prepare our children for life. We teach them good manners, to be courteous and respectful and simply to be good human beings.
We drill into their young minds how important it is to study hard, get a good qualification to one day land a top job and earn the big bucks because then you can have the nice car, big home and no worries.
However, we often falter in our teachings, either intentionally or by our own shortcomings, on the basics and importance of being financially responsible and savvy.
Don’t assume adult children will behave differently as they grow up if you spoiled them and carried them financially through life. Adult children’s behaviour often borders on financial abuse, and often it is because of how they were brought up.
Teaching children financial responsibility and independence should be high on any parent’s priority list.
In my daily life, I meet successful people, many of whom have admirable qualifications and successful careers. However, it is surprising how many of them are not financially savvy.
In further discussions, it becomes clear that many adults were not taught the basics of money while growing up. Many learnt the finer art of investing and money management only later in life. Some still lack basic financial discipline, such as budgeting and spending less than they earn.
Sadly, many adult children still act like teenagers, expecting ageing parents to fund their lifestyle. It is not uncommon for parents’ wealth, built up over years, to be passed to their children and to disappear within a few years after their passing.
It is also not uncommon for children who were used to trust funding during their lives to see trust funds go into a downward spiral after the passing of their parents, when the children remain the only beneficiaries of the trust.
Be careful what lifestyle you make your children accustomed to. Unless you instil the importance of self-sufficiency through disciplined financial habits, children will falter after your passing.
Please don’t be that parent who leaves their child to their own vices. The attitude of “they can learn through their mistakes” may just be too costly to recover from.
In the following three articles, I am going to try to guide parents to make their children more financially savvy at different times in their lives. We are going to start with the basics for young children.
I don’t want to generalise and state that all parents leave their children to their own vices. Some parents really put in a lot of effort to set their future protégés up for success. This basic guide is probably not for them.
Our main challenge which applies to children of all ages.
Our main challenge is helping children of all ages understand that you have to give up something to gain something else. Not everything should be free and end up in the shopping trolley just because a young child wants it.
If you create this habit when a child is young, good luck breaking it when they are young adults.
Getting something for free doesn’t apply only to physical items. It also applies, for instance, to work done by a parent (like building kitchen cabinets for a child while the adult child goes on a holiday rather than helping the parent, or living in a property of a parent rent-free while the parent could rent it out to someone else as part of their retirement income.
It is about treating parents with respect, paying your dues, and realising that someday you may have to help your parents financially.
The more you take from them, the sooner that day may come. Hopefully, you will be able to afford it when it does…
The same lesson applies to parents – the more you give, the sooner your funds will be depleted. Parents can also apply the 3-jar principle mentioned below to themselves to help them remain financially sound.
Pre-school
(This obviously does not apply to children of a very young age. You judge when your child is ready)
Pre-school children start grasping numbers in different ways. They count blocks, sweets, animals, and people, and they are introduced to basic ‘sums’ that will one day evolve into complicated mathematics.
While they learn numbers, you can introduce monetary values in a fun way. They can be taught to identify different currency denominations, and that paper money is more valuable than coins.
If a child wants something while you are shopping, it is an ideal time to start teaching them about money. If they are old enough to ask for something in a literate way, they are old enough to start learning what money is and how it works.
Lesson #1:
Everything has a price. Nothing is free. If the child doesn’t pay for it (which is the case in most scenarios), the parent (or grandparent) will pay. Someone has to pay.
If they convince mum or dad (or grandparents) to buy a soft toy or sweet, give them the money to pay the cashier. Instil the habit early that if I want to take something from this shop, I must pay the cashier. (Make sure they get their change!)
On the flip side, if there is no money or it is too expensive, the answer is unfortunately no, unless the child has their own money.
In today’s world, where payments via devices are the norm, it is more challenging and perhaps even more important for children to understand that there is money behind the “device-tap”. Merely tapping the phone or smartwatch does not entitle you to “have something”.
Make sure they understand that mommy and daddy leave home every day to work and earn the money that buys food, the house, the car, and the nice things they like. If mommy and daddy do not work, then they must sell the home, the car and the nice things they like.
That one day, they too will have to go and work to be able to buy the nice things they like. No work, no nice things. This principle can also be taught by way of pocket money and paying them for chores.
This works well with some children but not all. I introduced an invoice system when my two daughters were six and eight. At the end of the month, they had to provide me with an itemised invoice for chores completed that month. Each chore had a price we negotiated.
My eldest daughter did this diligently (sometimes crooking the numbers, but I think I caught her out most of the time). Her younger sister came to me in the middle of the first month and told me to keep my money. She is not interested in this system. I tried…
Lesson #2
Today’s children are smart and device savvy. I know of several cases where a young child has “accidentally” bought something online or subscribed to a game or something else. Hand your device to a child for “entertainment” at your own peril…
Introduce saving. Make saving a lifelong habit. The more you save, the more you can buy.
Introduce the three-jar principle to your child as soon as they grasp numbers, especially when they understand that different things have different prices and values. In short: Have your child divide their birthday money, pocket money and “other” money into 3 pots, namely:
Spending – for spending between pocket money dates on “stuff”
Saving – for items that cost more than their usual pocket money
Gifting will become more important and understandable as they age. Young children love giving, and nothing is more rewarding for a child than giving to someone who has less than they do. In the beginning, it may be tough, but as soon as they reach school age, they will start to understand the power of gifting. It is important that they understand there are children less fortunate than they are. A good way to teach them the value of gifting and sharing is to make a rule that every time they receive a gift or something they want (apart from birthday gifts), they must give up one of their current belongings in return. They can then personally hand over the toy or whatever they chose to gift to the other child, the new owner of their gift. It also declutters their rooms…
Teach them that money does not make a person. If you don’t have money, it does not make you bad; it makes you less fortunate.
Teach them the principle of delayed gratification. If you have to save a bit longer for something you want, you will appreciate it more when you can afford it someday.
If they are a bit older, teach them to compare costs. The first purchase is not necessarily the best value, especially for more expensive items.
Instil a sense of entrepreneurship at an early age. Most successful business people were entrepreneurs from an early age.
Be patient, be diligent, and teach your children well. Empower your children with knowledge and financial acumen so that, one day, you will be comfortable handing over the management of your financial affairs to your child when you can no longer do so. When this happens, you want the peace of mind that you will be in good hands.
Take care of yourself and your children (but don’t spoil them too much – grandparents, this applies to you too…)
