Helping your kids get a handle on money can set them up with good habits that last forever.
It’s no surprise to learn that the younger you start teaching kids about money – how it works and how to manage it – the better prepared they are for the rest of their lives. So what’s the best way to teach them?
In some ways it’s getting even harder to see what money is and understand its value and role because, thanks to COVID-19 and social distancing, we’re not using cash like we used to. What was once a very visual transaction is now a much more abstract concept, with tap-and-go and online payments happening at the touch of a screen.
Two sides of the coin.
One way to do it is to look at it in two parts – where it comes from and where it goes. Or how to earn it and how to spend it.
When you’re really young, you probably just think money comes from your parents’ purses, wallets and pockets. Kids don’t realise that one of the reasons you’re not always at home is because you’re working to earn money. Pocket money is an excellent opportunity to teach them that when you work, you get paid something in return.
Learn to earn.
Instead of simply giving your children a set sum each week, break it down into a few jobs, each of which has its own smaller value. The more they complete, the more they earn. Don’t do it for tasks you’d expect them to do normally, like cleaning their room, making their beds or helping with the dishes. (It is also important to teach them that some things aren’t done for monetary reward but are just part of everyday life and being part of the ‘home team’.) Let them earn their pocket money by doing things like looking after pets, cleaning the car, doing some weeding or watering the plants.
Saving and spending.
Now your child has earned some money of their own, it’s what they do with it that counts. Starting good habits here will help them manage their money for the rest of their lives.
A popular teaching method to help them understand the abstract concept of money is to use three jars or piggy banks. Each one has its own label – Saving, Spending and Giving – and you encourage them to split their money between all three.
Saving. Together with your child, set a saving goal. Think of something they can work towards – something important to them that costs a bit more but is still achievable. It should take them a few weeks or months to save for it. Once they get it, they’ll understand how good it feels to save for something, the satisfaction of being patient, and that they don’t have to spend their pocket money as soon as they get it.
Spending. This is the bit of money that they can spend as soon as they get it – little treats, small toys and anything fun to reward themselves and let them spend their money the way they choose to.
Giving. Whether it goes to a charity or to buy presents for family and friends, this lets them feel how good it is to share and spend money on others.
And if they’ve blown all their money, it’s a good chance to make them understand that money is finite. Tell them about budgeting and work out with them how they might better divide their money among the three piggy banks. They should be able to reach their savings goals and still do the things they want to in the short-term.
What now in the time of COVID?
Like all things, even pocket money and saving jars have gone online. There are plenty of apps to explore and reviews to check out. The sophistication of technology may actually make these better, but the principles of earning, spending and saving are the same.
While us oldies might mourn the disappearance of real cash pocket money and shaking the piggy bank to hear the coins, it may be a good thing that children learn online ways of managing money.
Chances are they’ll live and work in a time when all day-to-day money is digital.
The key is to include children in your own spending and saving habits. Sit them on your knee when you pay your power bill online. Show them the bill you’re paying, the account it comes out of, and where it goes. Even let them click the buttons and have a bit of fun (about the only time anyone can have fun paying a bill). The most important thing is to talk about it, explain what you’re doing and why you might not have spent the money on something you want so you can pay for this necessity.
Talking about money as part of your day-to-day life is a great way to help children understand. When kids pick the next show to watch on Netflix, it feels free because it’s already there waiting to be chosen. It’s good for them to know it’s not free.
Bring them into your saving and spending plans so they understand why you are making certain decisions. It helps them to realise that the reason you’re not all going out for a burger and a movie is because you’re saving for a family holiday.
It’s not just big-ticket items. When the children come to the supermarket with you, get them to help make the decisions. Is it worth paying an extra 50c for something if it tastes pretty much the same? Look for special deals or the cost per 100g. Just because there’s a special on five avocados for $10, should you get them if you only need two for $5?
Whether you use jars, piggy banks, apps, or something else, the one thing to remember is kids learn from your behaviour. How you spend your money, how you approach savings and how you talk about it will ultimately shape their views and behaviour and, most importantly, stop them relying on you and get them used to the idea of paying their own way.