Raising Financially literate children starts with you, today 14th March 2016 marks the start of Global Money Week with the theme “Take Part: Save Smart”
GMW is a celebration, with local and regional events and activities aimed at inspiring children and youth to learn about money, saving, creating livelihoods, gaining employment, and becoming an entrepreneur through interactive and fun activities.
With money management not taught in schools, it is so important for parents and guardians to ensure that their children are equipped with at least the basic concepts of personal finance before they go out into the world. Sadly, most parents don’t deal with their children’s money issues until the children are adults. By then, any money problems tend to be both costly and emotionally charged as parents resent having to constantly bail their teenagers and young adults out of financial woes. Bad money habits once established are hard to shake off and can often last a lifetime.
Be a positive role model
Young children provide parents with the best opportunity to encourage good financial habits and avoid problems that may develop later in life in terms of money and relationships if this area is neglected. A research report from Cambridge University revealed that money habits are formed by the age of 7. This means that the earlier we start to introduce our children to the basic financial concepts, the better.
Fortunately there are several teachable money moments that can be introduced from home. Parents and guardians are the biggest influence and children will typically develop their attitudes and habits through the examples they see at home. They are more likely to be good savers if their parents set a good example. It is thus important to realize that our behavior will have a long lasting impact on our children’s money personalities, which affects how they spend, save, invest, borrow, and give.
Create a budget
The best way to teach children to manage money is to give them some. Their allowance or pocket money is usually the introduction to money for many children. This provides parents with an opportunity to teach budgeting. Children should understand that they have a finite amount of money, which they need to manage in order to be able to afford the things that they want.
“Wants” versus “Needs”
Children should be taught to distinguish between wants and needs. If your child has been eyeing a new device or gadget, don’t just “help” them out by paying for everything that they want, as this sends the wrong signal. This is a good opportunity to have them compare costs and shop around for the best prices and then begin to set aside money towards the purchase, by foregoing other items. You can agree on a target amount that they should save themselves, after which you might consider matching the amount as appropriate; this will give them a sense of fulfillment as their “sacrifice” has brought about a direct benefit.
Learning to earn
Chores teach discipline and responsibility and should not necessarily be paid for. But if a child is particularly helpful in completing chores around the house, some parents might opt to tip them as a reward for the work done. Penalties and fines may also be imposed where work is neglected or done shabbily. Part time jobs and vacation jobs also give children a practical understanding of the effort and time that is needed to earn an income.
Some children display entrepreneurial skills very early. If your child is showing significant skill in a particular area, you might encourage them to start a small business. This is a great opportunity to teach them about money and also sows the seeds of entrepreneurship. Apart from earning income it will begins to instil a solid work ethic they will benefit from throughout their lives.
You can make the subject of money fun and engaging by using board games. The Monopoly board game is a great tool to teach children about the important concepts of Banking, Real Estate, Saving, Taxes, Budgeting and Personal Income. The great thing about board games is that not only are members of family spending precious quality time together, but they are also learning invaluable life lessons at the same time.
There are many “invisible expenses” that children should be made aware of that do not involve physically handing over cash. They constantly request for your car to drop them at a friends’ house with no consideration for the cost of petrol, and they demand constant electricity without giving diesel costs a second thought. All these everyday actions such as using electricity or data usage will run up bills that they may ignore if you don’t point them out. Talk about money saving habits like turning of lights or air-conditioners when not in use; if they actually see the bills, these will become practical real life lessons that will help them to make better money-saving decisions.
As soon as children have access to money from pocket money, chores, vacation jobs, they can begin to save. They should try to save at least 10% of all their pocket money in a piggy bank; subsequently a savings account should be opened for them at a reputable bank. Birthday money and any other income they may have should be deposited.
A savings account with some restricted access will help to teach them the discipline of saving. Without regular withdrawals, they will quickly learn the concept of compound interest. As their balance grows, this will be an incentive to save more as they can see the direct benefit over time.
The “buy now, pay later” mentality is endemic and can plunge young adults into a cycle of debt if you don’t reinforce the idea that waiting pays. Debt becomes part of our lives at some time or other. The sooner your teenager understands the concept of debt, its advantages and its pitfalls, the better.
Making an impact
A valuable lesson about money is that giving is as important as receiving, Discuss with your children, a cause which they would like to support and make it possible for them to visit and understand what impact their donations of either money or some of their belongings will have.
We should take deliberate steps to teach our children to be as financially aware as possible by the time they leave home as this will help them to avoid some far reaching mistakes. Financially literate children have a much better chance of becoming financially independent adults and attaining future financial security.
Be part of GMW 2016 to help our children and youth to secure their financial futures. ‘Take Part. Save Smart!’
Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.For more personal finance tips, contact Nimi: Email: [email protected] Website: www.moneymatterswithnimi.com Twitter: @MMWITHNIMI | Instagram: @MMWITHNIMI Facebook: MoneyMatterswithNimi