“The easiest way for your children to learn about money is for you to not have any”.
Well, maybe the above statement is a little severe but the reality is there is some truth in it. When I was a young girl we had a school banking day when we were required to take along our savings passbooks with our little pile of coins and our completed deposit slips. From memory this was a Thursday and the nice man or lady from the Bank came and took our banking and returned our books, suitably adjusted the following week – with never any offer of a withdrawal service if I recall.
Whilst this sounds a little trite, this taught us how to save and relish the thrill of watching your savings grow. In my family we had to earn our pocket money by doing household chores and then we were encouraged to save 10% of what we had earned. As we got older we obtained the usual weekend and after school jobs in dairies and supermarkets. Again, we were encouraged to save at least 10% of what we earned for a “rainy day”. The rest we could spend as we wished but somehow the greatest thrill was in watching our savings grow. Once we earned our own money we were responsible for buying our own luxuries and exquisite clothing purchases. Thankfully there was not the same selection or label focus back then.
Other ideas for encouraging savings amongst your children is to have 3 pots of money where their pocket money or wages are divided into – spend now, save now and family tax. The family tax pot being for a special family day out or treat where everyone can help contribute to the cost. Alternatively, I’ve also heard this third pot being for ‘charity’ to encourage philanthropy from an early age.
One of the greatest skills you can teach your children is managing their money. If you have a son or daughter who has an insatiable appetite for designer clothing and foot wear, negotiate a clothing allowance with them that they are free to manage as they wish but they are not for any more. It is amazing how quickly their tastes were modified by this budget!
As I see it, we do our children no favours by handing them what they want on a plate. I often hear parents say, “ I work hard to provide my family with the best that money can buy”. Stop and think – what are you really teaching them?
Tips for helping your kids to become responsible with money:
- Encourage your children to work for their pocket money. When they are old enough, usually fourteen, encourage them to work for someone other than you. This gives them a taste of the real world.
- Encourage your children to save at least 10% of everything they earn.
- Teach your kids to budget and explain ‘pots of money’ The Sorted website is very useful for this.
- Inform your children that if they wish to go to University you will expect some effort from them. This could mean that they save a portion of their money towards this and/or making it clear that they are expected to work part time whilst they study.
- Sign your kids up for Kiwisaver when they start work and encourage them to contribute to this. This can be done via their employer and they can manually contribute. It doesn’t matter if they are under eighteen, it just means they will not qualify for the $521 p.a. tax subsidy.
- Lead by example – your children learn by observing your habits with money. If you put everything on credit card then this is what you are teaching them. If is important to talk to your children about money and a little about how you manage your own affairs (you do not need to go into every detail!).
- Consider providing a weekly or monthly allowance for your teenagers.
- Save – open a bank account for them and discuss how interest works. Maybe incentivise them by adding a few dollars to their account yourself every time they save a dollar.
- Talk – explain the basic financial concepts of money your children. If you are not sure what to explain, get someone you know and trust to support you and share the following with them:
- the power of compounding – investing a $1 and earning 10% so it becomes $1.10 in year one, and then year two 10% is earned on the $1.10 to become $1.21, and so on, earning interest on interest
- the effect of inflation on money
- the time value of money
- how capital markets works
- buying appreciating assets and buying well values are low
- smart debt versus non smart debt (see Debt Management)