How to teach your kids about money!
In today’s cashless society it’s hard for children to understand the value of money and more importantly for them to understand that there’s not a never-ending supply of it coming from that little slot in the wall we call an ATM machine.
Money management skills are an important life skill and they help children not only financially later in life but also emotionally. It can assist them with their happiness levels if they know how to manage money. I am a believer that money can’t buy happiness, but a lack of money certainly can cause stress and unhappiness.
Having good money management habits will give them choices and the freedom to make the decisions that will ensure that they have the life that they want as an adult.
So, when is the right time to start teaching children about money? From my perspective, the sooner the better. When they start wanting to buy things! I generally feel that children have the ability and intellect to start learning about money before we think they’re ready.
For me, I started introducing money concepts when my children Eleni and Billy were about three and five and I was sick of the tantrums in the shops when they asked for things and I had to say no.
Below I’m going to share with you five tips on how to teach your kids about money and give them the best start in their financial future.
Tip #1- Teach kids the value of money
ATM machines and credit cards make it hard for kids to understand that money has a value. Kids think that you stick your card in the wall and money magically spits out or you wave your card in front of the machine at the shops and you can take anything you want. To teach kids the value of money they need to learn where money comes from, how you get money, that there is a limited supply and you do have to pay back anything you purchase with your card. Take a read or our blog about credit cards here.
I encourage you to talk to your kids about how you earn your money and get them to look at different objects. Instead of focusing on the dollar value focus on how much effort your child needs to exchange to get the object. For example, with my children when they are young, I started a money jar system and they would earn $1 for good things that they did which might include chores or good behaviours that I was trying to encourage.
Then if they wanted a new toy and that toy, for example, was $20. They saw it as an exchange for good chores or good deeds rather than an exchange for $20 which was hard for them to grasp. It helps them to put the purchase into perspective and helps them to realize how much effort they need to exert to be able to afford the toy that they want.
Then they can decide if they are willing to put in that effort to earn the money that is required or perhaps really, they don’t need the toy. This is going to help them to psychologically understand how much effort and money they must give up in return to get the goods they’re purchasing.
With younger kids’ money jars are a great idea where you’re using coins. Then as the kids get older encourage them to get a job and a bank account so that they can start doing the same sort of thing but using money from a bank. Therefore, helping them to learn the value of time and the value of money.
Tip #2 – Teach them that it doesn’t matter how much money they make it’s what they do with their money that’s going to count
Australians have a bad habit of spending more money than we make. So, what I’m asking you to do is teach your kids to save. Encourage them if they do get a part-time job or if you are giving them pocket money or they earn money for chores, encourage them to save a set percentage of that money.
This means they get into the habit and routine of saving a set percentage of whatever income they receive, putting it aside for something in the future. It’s also a good idea to start helping them to learn how to save for bigger purchases that they want. For example, if there’s something more expensive that they want, like an iPad or something that’s going to cost a lot more money. Instead of you buying it for them encourage them to save and put them on a savings plan with their own money. These savings habits will really serve them well later in life.
Tip #3 – Teach them to invest
Help your children to learn the options of what they can do with their savings. For example, they can save their money in the bank or they can invest their money and grow their wealth. Talk to your kids from a young age about property and shares and other forms of investment.
I like to play Monopoly with my kids, and I find it’s a really great way for them to learn the concepts of earning money whilst they’re not actually having to physically work. It teaches them about collecting rental income and paying debt. For teenagers, it’s good to encourage them to read the book by Robert Kiyosaki, Rich Dad, Poor Dad or my book The Rise High Investor. Robert Kiyosaki also has a great board game called the Cashflow Game which is also great for teenagers.
Try and teach your children that if they spend money on consumables the money’s gone forever, but if they spend money on investments which are income-producing appreciating assets then their money grows.
If you’re an investor yourself, I really encourage you to involve your children in your investment activities. Take them to the seminars that you go to, to the accountant or the property management meetings. Bring them along when you see your mortgage broker.
Tip #4 – Teach them how to be entrepreneurial
Whether your child wants to become a business owner, an entrepreneur or work for someone else. Having an entrepreneurial mindset and spirit will really help them to achieve great things in their career and help them in their financial lives.
I find that one thing to do to help bring out that entrepreneurial spirit is give them less money than they need. Teach them to find creative ways where they can make money for themselves and be entrepreneurial. This is an important skill.
Some examples of what I’ve done with my children is I will give them money for things that we’ve agreed that they will get money for. But then I know, that’s probably not enough for what they really want or need. So, they will come to me and provide me with ideas of how they can earn more money.
This might be washing my car or washing an aunt or uncle’s car or asking the grandparents if they can do some work in the garden. Working out how to be entrepreneurial to actually think of ideas of how they can generate extra revenue themselves will help them to shift their perception from money as an entitlement to money being something that they can get at any point in time in the future that they want, as long as they’re willing to work for it and think outside the box and think about how they can add value to someone else’s life.
When children start to understand this concept of adding value to someone else’s life. Then they’re able to generate their own income in the future and this is a really good way of helping them to understand that they can be in control of their financial future and they can make their lifestyle and dreams come true as an adult.
Tip #5 – Lead by example
Finally, it’s important that you lead by example. You are your child’s biggest financial influence. They’re learning so many money habits from you. They’re going to watch how you manage money, your relationship with money, how you feel about money, your money habits and they’re likely to adopt those habits and adopt that approach to money as an adult.
Look at your own habits and your own relationship with money. If you feel it needs improving, then perhaps you should work on improving your money management skills. Consider getting a money mentor or financial planner that can help you so that you can be the role model that you want to be for your children.
If you do go on a journey of improving your own money management skills then take your children on the journey with you so they can understand why it’s important to have really solid money management habits and be responsible when it comes to money management.