When it comes to being a father, teaching your children about the facts of life, or other slightly embarrassing subjects, is often something we would rather leave to Mum. Often men are more comfortable teaching the kids about things like how to chop up firewood, or mow the lawn. It is no surprise then that when I was asked to teach the kids about money and finance I was right up for the challenge.
“This will be easy”, I thought. Then I stopped and began thinking about what I would actually teach them. What angle should I take? Was it too early to warn them of the dangers of sub-prime mortgages or should I keep things simple?
I got to work after some serious thinking. The lessons seem to be going well if I may say so myself, and I figured that for other fathers about to embark on the journey of economic discovery with their offspring I would lay out some of what I felt should be taught.
Start Early
I don’t think it is ever too early to start teaching your children some sort of financial responsibility. Even if it is as basic as teaching them to respect their toys as they cost money and cannot be easily replaced. As soon as a child learns to count you can begin giving them very basic ideas about adding and taking away.
One thing I always did when my children were younger was to let them give money to the cashier whenever we went to the shops. I was trying to impress upon them that we actually had to pay for what we had in our trolley and that it wasn’t given to us for free.
The Value Of Pocket Money
It is very hard to teach children the value of money without giving them some of their own. Having pocket money will give the child a sense of being grown up, and will normally spark an interest in money. The amount you give doesn’t have to be huge. In fact a small nominal fee is just fine.
You are not giving your children this money so they can save up for their first house, but rather so that they begin to understand the principles of budgeting. Once you decide on an amount to give your child each week you should stick to it as much as possible. The idea is that if there are any small toys or gifts they want to buy, they are to pay for them with their own pocket money.
If they do not have enough money for a particular item then do not give into the temptation to pay for the rest, as it will defeat the whole point of the exercise. Instead, show them that they are a little short and if they put next weeks pocket money towards it they will be able to buy it.
Even if the child protests (and they probably will), you must stay strong. Giving in and handing them the extra cash renders this whole lesson meaningless.
Get Them A Bank Account
My kids loved it when we got them their first bank account. They loved getting the letters through the mail giving them their balance and it did give them a real sense of having control of their money. The power of seeing numbers on paper is amazing, and as they begin to see the numbers increasing it is great to see how much more motivated they are to save rather than spend.
There are many good bank accounts for children available, and many come with fun account books, and other bits and bobs that will appeal to the little ones. As they begin to get a little older this also gives you the chance to introduce some early teachings about interest rates.
Give Them The Chance To Earn More
Something that is very important to teach early on is that you have to earn your money rather than just expecting it to be handed for you. A good way of teaching this is to give your children the chance to earn money on top of what you give them each week in pocket money.
Give them “wages” for helping out with general household chores such as hoovering, or cleaning the car. This should imprint the idea of earning money into their heads, as well as meaning less work for you around the house! Yippee!
As your children becomes older, suggest some sort of basic weekend job. Something like delivering papers, or sweeping the floors in a salon is always a good place to start and will give them much more financial freedom.
If you are lucky enough to have a child that seems to show some sort of entrepreneurial interest then you should encourage it. Listen to any ideas they have about making money and take an interest, no matter how wild or outlandish the idea may be.
Involve Them In The Household Bills
As they reach teenage years, it can be a good time to start introducing them to the cost of running a house. Make them aware that every time they go to the toilet or have a bath it costs money. Get them into the habit of switching lights off, and turning taps off when they are finished.
Again this has the dual effect of giving them an important lesson in finance, as well as helping you keep household bills down. Something I like the idea of is giving my children fines if they leave the lights on etc. I feel it will again imprint the importance of being financially aware. Something to try out perhaps?
There are many different ways to teach your children about money and although nobody can guarantee their children will be financially responsible all their lives, we owe it to them to give them the best possible start.
This is a guest post from Timothy Ng, who lives, breathes, and sleeps personal finance! Check out his in-depth guide to credit card comparison where he answers everything you need to know before applying for a credit card.
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My wife have 2 children (our son is 10 and our daughter is 7), and instead of giving them allowance, we have them earn commission for tasks around the house.
If they want to buy something, then they need to look around the house and figure out something that needs to be done, come to us, and negotiate the commission that they’ll earn. We’ve found that it’s a great way to motivate them to both earn money and also to develop their problem-solving/opportunity-spotting skills.
As a business owner, I want to teach my kids the skills they need to be successful so that they might someday start their own businesses. One of the best benefits of being self-employed is the paradigm of independence, freedom, flexibility, and possibility which I didn’t have as an employee. Owning a business has truly changed my life.
I truly believe that entrepreneurial skills have to be taught to our children if we want them to be financially independent and successful.
Encouraging them to find ways to earn the money they want to spend is one of the best lessons you could ever teach a kid. And a lesson that will last a lifetime. It took me years to realize that you don’t make money by sitting on your butt and hoping it will come your way (my mom & dad wanted me to have it easier than them so they spent more time giving to me than teaching me).
Just an aside on the chores bit. We have an inspection after to make sure they weren’t done sloppily. If he missed spots he has to go back. The same as a job on the outside, quality counts.
I have a school age child, and to me, teaching her about finances is actually a great joy. Shouldn’t be surprising given that I have a personal finance blog:)
But really, it’s not always as easy at it seems and is a constant work in progress. These tips above can be a real help. A big thing for me is to tell her how it’s important to save, because when you’re old like grandparents, it’s hard to move around and hard to work and find work. We don’t want to have to work when old, do we? That question works to get across the concept that we need to save. It works not only with kids, but visualization is a technique that can work for adults too.
A rather painful lesson you can teach is by showing them that the bank charges storage fees for keeping their money. In the good old days they paid interest; not so nowadays. It’s also interesting to show them the electric bill and point o ut that only about 15% of what you pay for is actually electricity. You can do this effectively at the gas station too — show them how much of the cost of gas is really taxes that have nothing to do with Big Oil (especially useful if you have any Liberals in your household) but are in fact money hoovered out of your wallet to be pissed away by your congressman on martinis. Another good math problem is showing them your credit card bill, and pointing out that although the bill says you spent $7.99 for that Starbucks Latte, you’re paying extra money for the privilege of charging it.
One technique I do is every time I check my bills, I always make sure that they can hear me doing all the computations for the bills and then I will ask them, what should I do to get lower bills and save more. It is good to get them thinking of what to do so they themselves will be able to suggest things that could help.
I actively teach my children about money management. There are many times then see something that I have mentioned that I want, but I tell them that I’m not going to buy it now – until it goes on sale, or I’ve saved up for it. they get allowance for doing chores. If one of them doesn’t do their chores and the other does it for them, then I give the hard worker a share of the other kid’s allowance. It’s a great motivation.
There are certain chores that are part of being a member the household and they don’t get paid for those, only the ones that are extra. For example, you don’t get allowance for taking your own dirty clothes the laundry. Also, if they are reckless with their clothes, eg paint without wearing a smock, then the shirt, pants or whatever is damaged, me they have to repay from their allowance. If it was an accident, eg someone tripped and tore pants, then I let it slide.
Teaching these lessons is critically important because children learn from their parents and if you aren’t actively thinking about you’re teaching them, you’re passively teaching them. If you want them to do things exactly how you do them, there’s nothing to worry about. If you want them to be better, you have to be more active.
My daughter is only 6 months, so im not here yet. But I am also a personal finance guy and I have simliar ideas when it comes to teaching my kids about money. I plan on them having set chores that they have to do just because, and then another set of chores that earn money. If they do the chores they get the money, if not they dont get the money. Obviously the nature of the chores would change as they get older, as would the amounts of money.