Most parents will agree that teaching children about money is an inherent part of parenting. Most children’s attitudes to money are shaped by their parents, whether you pro-actively pass on information or they just copy what you do. Shafeeqah Isaacs, head of financial education at financial services provider, DirectAxis, has some age-appropriate lessons to help children become financially responsible adults.
Age 3 – 5: You cannot always get what you want, right now
We live in an era of instant gratification. Teach children early that some things are worth waiting for. Set attainable goals. For example, if your child wants a particular toy explain they will have to save for it. Have a piggy bank to put birthday money or small rewards for helping out, good behaviour or achievements. Try to set them up for success by making sure the goal is achievable and they do not have to wait months for it.
Age 6 – 10: You are responsible for the financial choices you make
You can teach your children the basics of financial decision-making by explaining financial priorities. For example, you can tell them how when you get paid, you first need to pay bills such as the home loan. Then you need to buy groceries. If you do notspend money on things you do not need, you will have some left over to do something fun together.
When they earn pocket money for doing household chores, help them work out a budget.
Take them along when you buy groceries. If they want something special get them to contribute to that. Remind them not to spend all their money as they will need to save some to treat themselves.
Ages 11 – 13: The sooner you start saving, the sooner you will reach your goals
At this stage you can introduce the idea of saving for long-term goals. Perhaps set a goal for something more expensive. Often at this stage children are reluctant to save because they want to buy things such as snacks at school or more airtime.
By setting a bigger goal you can teach them that the opportunity cost of what they need to give up will enable them to save more and reach their goal faster. You can also teach them about compound interest: how by saving over a longer period, they benefit from the compounding effect because they earn interest on the money they have saved.
Replace the piggy bank with a bank account
Ages 14 – 18: Understand how to borrow sensibly
As children grow up their earning potential increases. They may graduate from doing household chores to getting a job. Typically, their expenses also increase. They may even want to save towards buying a car.
At some point they will probably ask to borrow money. Set a goal in terms of what they will need to earn before you will match them or lend them the remainder.
Work out a reasonable period for the loan and a repayment schedule and charge them moderate interest. Explain there willl be penalties if they miss payments. You are teaching them how to build a good credit record.
As a parent, teaching children about money is not something you will ever stop doing. Perhaps the most important lesson of all is to remember that you are a role model to them.