By Susanna Stuart – Financial author, writer and planner.
Please fasten your seatbelt. The flight ahead over the next few years as your children grow towards full financial independence is bound to get a little bumpy. As your kids get older they’ll learn the buying power of money and they’ll learn the big lesson that it gives them a measure of power and independence. The real challenge is to be sure they learn that money also requires restraint and responsibility. Here’s a brief flight guide.
First step.
Those air safety routines before take-off offer a piece of advice that applies to your finances as well. “Should an oxygen face mask appear,” the videos say, “be sure to put yours on first, before putting on that of your child.”
This is also true with money. When it comes to giving your children a great head start in finance, nothing beats getting yourself in order before anything else. The three golden rules are:
- Lead by example. Tighten up your own spending – be conscientious in your budgeting.
- Demonstrate the power of saving over instant gratification.
- Show that goals matter. Show your kids that you have big goals you are saving for. Share with them the sense of achievement when you reach these objectives.
Teach your children good money attitudes.
Children learn their money attitudes through example and practice. As infants in their terrible twos they’ll kick up a scene at the supermarket as you yank them away from the confectionery aisle. And from this point on you need to be pretty conscious of the attitudes you’re trying to encourage.
- Encourage children to set goals – beginning with small ones.
- Encourage familiarity with money. Coins will be merely fascinating objects at first, but by age eight children can become fascinated by the accumulation of coins and the power of saving.
- Show children how banking works and set them up with their own account.
- When they’re older, show them how you carry out budgeting and your household finances.
- Give them responsibility and practice by having a regular allowance. Make sure you spell out what spending this allowance covers and the basis upon which the allowance is given to them. They should have tasks as part of their contribution to the household that are not linked to the allowance (for example, making their bed).
The biggest single money lesson to teach your children is about saving. For hard-core teaching, pocket money and the child’s own bank account are pivotal. Set fair rules and guidelines, be consistent, and allow enough freedom to succeed – or fail. Reward savings by ‘topping up’ the child’s efforts when they reach certain milestones. (Wouldn’t it be nice if the banks did this for us big kids?)
Headwinds and Hijackers.
In a perfect world we’d all have time to sit down and nurture and encourage our children in all the subtleties of the adult life that awaits them. What a pleasure that would be. The truth is; life puts pressure on us, and as our children fly towards adulthood there are headwinds and hijackers that will play havoc with their financial education flight plan. These include:
- Time. Sometimes as parents we throw aside our own financial commonsense because of time pressure. Are you handing out money readily because it is an easy way out to “shut the kids up” or to win their affection? Look out for this one.
- Peer pressure. Make no mistake, once children hit school age, peer pressure is just as powerful as parental guidance. Children may wear two hats – sensible at home, but spendthrift when with friends. Keep an eye out for this. Make sure your children aren’t feeling trapped into “keeping up” with snooty friends.
- Increasing brand awareness. From age eight children are under pressure to express their ‘belongingness’ to their peer groups by wearing the accepted brands. Kids can be pretty savvy at dealing with this – wearing the token branded cap ($30) but eschewing the expensive branded shirts, pants and shoes. Give them an allowance for basic clothing, and if they wish to go for the expensive labels…well let them do so, by paying the difference from their own allowance.
More guidelines and learning tools.
Most banks have useful website pages and so does the Retirement Commissioner’s website (www.sorted.org.nz) which has a separate section for children and also students. These pages include games for teaching money skills to children. Check out the banks offering specially designed savings accounts for kids; these accounts charge minimal or no fees, and do not require a minimum balance.
There are books of course and in my book “Start Talking Cents” I have shown how the developmental stages of children from infancy through to the teenage years can go hand in hand with various money lessons.
When I interviewed dozens of adults in the course of writing the book I was struck by the one common story they told me. All told me that their greatest financial influence was that from their parents. Enjoy the journey.
The views or information given in this article are not necessarily the views of AMP or AMP Adviser Businesses. It provides general financial information and is not intended to provide financial advice. For personalised financial advice, we recommend you contact us.