Teaching your kids about personal finance

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life can and should be inculcated from a young age.

Mandy Porter

Talking about money is high up on the list.

Doing so in a calm, relaxed way and making use of everyday opportunities to demonstrate healthy financial habits is important.

From a young age children witness how their parents interact with money, so demonstrating the value of money is vital.

Pay cash, not card

One way of demonstrating that money has value is to pay with cash when your children are around. Paying with a credit card sends the message that anything is available just by swiping a magic piece of plastic.

Have a conversation about items that you consider essential versus luxury or just-for-fun items. Explain that it is not good to spend more money than you earn and that if you want something, you need to save for it.

Teach financial restraint by not giving into your child’s every wish.
Allowances provide practice for money management

One of the best tools for teaching children money management is pocket money, or an allowance. Experts differ on the age which this can start, but it is generally accepted that six is a good age. Start off with a weekly allowance for young kids and increase this to a monthly allowance for teenagers so that they can be challenged to make their money last. Tie the granting of an allowance into basic household chores, so that your child understands that you have to work for money, it does not simply get handed out. Talk to your children about what types of expenses you cover – electricity, food, house and car – and explain how they might spend their own personal allowance.

A good tip is to divide the allowance or cash birthday presents into a portion that can be spent immediately, with the rest being put away for the future.

By the age of nine, a child can open their own bank account, and by the time they start high school, they should understand the concept of long-term saving for a specific item they covet.
This helps to make the idea of saving less abstract. Teenagers experience peer pressure, wanting things their friends have. But the lesson to be learnt is whether or not they can afford what their friend has. And if they can’t, then they have to learn to wait until they can afford it.

Parents need to set strict money rules. If a child spends their pocket money within the first week of the month, do not grant them a loan. They should experience for themselves the consequences of being a spendthrift.

Keep teaching

As your kids grow older, explain new concepts to them such as borrowing, interest and investing, using real-life scenarios. For instance, if you go overseas, use this as an opportunity to teach your pre-teens and teenagers about the exchange rate and different currencies.

Living a financially smart life is something that should be inculcated from a young age, while at the same time we are never too old to change our own money habits.

Mandy Porter is a certified financial planner at Alexander Forbes.

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