I was never taught how to deal with money, I learnt ‘on the run’. However, I was never given much money either, so I learnt pretty quickly that either I could spend it quickly (at the tuck shop), or I could save it, and get what I really wanted ( a trip to the movies). When I got to University, that really helped, cos I needed a car, had a small deposit, but I had to get a job to pay it off, and keep it going. So I learnt to budget, pay bills on time, and to save for petrol and servicing.
But it doesn’t have to be that way – you can start teaching your kids from 5! Obviously if you have teenagers, you’ve lost a lot of time, but still, the following top 10 tips can be applied, and will go a long way to making you child a financially healthy individual (that doesn’t keep crawling back to you for hand-outs!).
1: Give them control of money.
If kids don’t have control of money before adulthood, they learn that money will always be provided for them, that they don’t have to be responsible for their spending or their future. And when they finally get control of their own money, they apply those lessons, by spending liberally and not worrying about the future.
They also learn that any money they have can be used to buy ‘fun’ things they want, and never has to be used for ‘real life’ purchases. Ever.
Any 10+ child can handle this task easily, with guidance offered in the beginning. By 11 they should be ‘going solo’.
2: Let them make mistakes and pay for them.
Literally. Let them buy rubbish with their pocket money, and learn that a toy that breaks because it was cheap but easily purchased, is not much fun, considering how long it will take to buy the next toy, having used their pocket money with instant gratification.
Age 5 and up. After age 10, you should agree certain items that pocket money must now cover i.e. extra sweets, and friends presents, console games, toys etc.
3: Physically give them their pocket money in small denominations.
Children will never learn how to spend wisely if they just see the money coming out of your wallet all the time, even if you tell them it’s their pocket money. Psychologically it’s NOT theirs, it’s yours, and you are spending it on them. No matter what you say. So give them the £10 in two £5 notes, and make them put it in a wallet, and be responsible for it, and watch them spend it. They need to hand the money over to the shopkeeper / school tucks shop, and see it leaving their wallet. This is particularly true for boys, who are more visual.
4: Make them wait.
Once they have spent the pocket money on whatever you have agreed are the items you won’t buy them, “Sweets are bought with pocket money from now on”, then make them wait to buy the next sweets after they have used their pocket money up. If you don’t, then making them spend their pocket money exercise is useless, and you shouldn’t bother.
5: Get over your guilt
Many parents feel guilty that they are making their kids pay for stuff. Get over it, really. Would you rather have a kid that never learns to deal with money, constantly is in debt, and is always looking for you to bail them out? Yeah, great parenting that is! How do you think the economy got into this mess in the first place???????
Seriously. Your Grandfather was probably a great, hard working upstanding responsible citizen. Why ? Cos he had to work for it, and he didn’t think he was entitled to everything. We’ve taught kids differently, and we call it ‘parenting’ beacuse we don’t want them to feel like they ‘never had anything’. Actually, we’ve given them TOO much, and we’re seeing the problems in society now.
6: Teach them to save for money goals, and that earning more money gets them closer to their goals.
If they have a worthwhile goal, such as a ski trip, or a car, they will begin to think “if I want to get to a goal faster, I have to save more … which means spending less on other stuff”.
It may seem hard for a parents who wants to support their children, to shield them from the hardships of life. But without facing the hardships, they won’t appreciate the value of money.
Encourage them to get a job or find ways to earn more money. Not from chores, as they need to learn to contribute to the household without expecting pay, but you can encourage them to earn money by washing other people’s cars (very important, because otherwise it’s simply you subsidising them again and this teaches them nothing), they can earn more, and thus get closer to the long term goal they have.
7: Teach them how money can make money.
They will need to make a longer-term goal, such as a trip once they graduate, if you have a teenager, an new computer, or for a University going child, or a down payment on a car.
Explain the value of compound interest, and look at it over a long time period so they understand the true value. Have a discussion about buying stocks, and the pros and cons of that.
8: Teach them about creating a budget. It doesn’t have to be a complicated budget, but what you really want to teach them is how to plan their spending, instead of having a big wad of cash that keeps getting smaller with every impulse buy.
Then teach them how to split the money up and how to keep within those planned amounts. Use separate envelopes to help them visualise the separation.
9: Teach them to pay bills. Does your teen-ager have a mobile phone? Who pays the bill? Give them the amount in their monthly budget, and allow them to pay the bill each month. If they’re late, the service will be cut off. They’ll learn to pay the bill on time. They’ll learn to be responsible. If its a pay-as you go, all they need to do is go to an ATM or a local shop, and top up their account. It’s not hard, but the lesson learned is invaluable!
They can also pay for their own hair cuts, dates, coffee with friends, and some movies with friends. Obviously they can’t afford everything, or they’d have no social life, but if they go to movies once a week with friends,you could agree to pay for 2 of the four etc. The rest they’ll have to save for (or find less expensive things to do with friends!).
10: Teach them about the dangers of debt and impulse buying.
Closely related to debt, impulse buying is the effect of advertising and consumerism. It negates budgets, and great saving practice, all for the sake of instant gratification. Teach them to think of 3 other items that could also be bought for the same price, and weigh up which buy would be better. Most importantly – make them buy all impulse buys WITH THEIR OWN MONEY. For two reasons, 1) they probably wont’ have enough money to do it, and 2) it’ll make them think a lot harder about whether they want it if they have to spend their own money.
Little kids can learn this at an early age. NEVER lend in advance, but if you do – CHARGE INTEREST so they learn very early the cost of DEBT. It’s a painful thing for a parent, but the banks don’t care about our child, and they won’t care when they take away their house either. Teach them the lesson early, and save them the serious pain! That’s good parenting!!
All in all, the moral of the story is you have to be a little harsh to be kind. As a parent, your job is to teach you child life skills, and help the have a happy healthy financial life for a long time. If you are the kid of parent that is just ‘nice’ all the time, then you are setting your child up for a LOT of pain along the way, and that pain will last a lot longer! Either that, or you’ll be supporting them for the rest of your life.
Put these 10 tips into action, and your kids will thank you later, when they realise how much you loved them, and how well you equipped them! Good luck!