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The Benefits of Teaching Younger Kids About Money

April 14th, 2010 Posted in kids and money, teaching children about money, teaching kids about money
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The Benefits of Teaching Younger Kids About Money

The benefits of teaching your children about money can be both immediate and longer term. In the short term, you are encouraging them to develop good saving habits, which may last a lifetime. They will also learn how to make informed purchases, and perhaps even understand why they can’t immediately get everything they want. In the long term, you are helping them avoid accumulating debt. By showing them the value of saving for the future, you can help your children plan for their financial security.

It’s never too early to start teaching you kids about money. Allow your children to help you determine what they are curious about and how best to teach them. You can use their questions to help develop lessons and conversations about money.

Explain to children that money is earned and is relative to the value that people give. An ideal time to begin teaching your children about the basics of money is when they first begin to notice it. To a young child, money comes from Mum and Dad’s pockets or purse. Or the magic hole in the wall machine that spouts dollars after merely pushing a few buttons. It’s understandable therefore, for kids to assume that money is readily available whenever it’s needed.

When you are trying to explain why you can’t meet their every demand, it’s better to avoid an overused response such as, “Money doesn’t grow on trees” when a more constructive explanation may serve both of you better. Consider instead encouraging your child to look at the consequences of the purchase. If they have A they can’t have B, or how could they save or earn the money for themselves?

Even very young children can begin to understand the concept of earning money. Explain to your children that money is received in exchange for working or as a return on an investment, and that you can only spend what you earn. To help them understand what it’s like to get paid on a schedule, begin paying an allowance. Then help them set goals for how they spend and save their allowance. It’s important, however, to make sure that you stick to the payment schedule; otherwise the lesson may be lost.

You may like to consider the spend; share, save method, where everything your child earns or receives they divide into the three areas. In this way you are encouraging them to develop good money management habits and also the principles of charity and helping others. You may consider adding a little extra to their savings as a way of demonstrating interest.

When paying pocket money or an allowance it is important not to set up an entitlement mentality in your child. If they think that they have a right to receive money from you from an early age they may grow up with that mindset. By all means link the allowance to chores and jobs around the home but consider that some tasks which contribute to the household should be done automatically and not for paid reward. You may like to create a separate list of family or community activities which the entire household share, along with an agreed list of extras activities for which your child will receive reward.

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>Even in the oil rich UAE – Schools need money lessons

March 16th, 2010 Posted in financial education in schools, kids and money
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>There is certainly a lot to learn about money than just counting paper bills. But financial illiteracy still affects a lot of young and old people alike. The thing is, money management skills are not even taught in most schools.

According to the fifth annual Future of Retirement study of HSBC, 62 per cent of people in the UAE have never accessed any form of general financial education. Only 38 per cent feel they understand their short-term finances very well, while only about 19 per cent have a clear idea of what their long-term finances look like.

“Money is probably the most important thing in adult life we simply cannot live without it. So, it is beyond comprehension that we are not taught about money, budgeting, insurance and investment at school. How can a school be happy to let children leave education with an excellent knowledge of Latin and literature, but no idea of how to manage their money,” notes Darren Ashley, managing director of Candour Consultancy.

That is why educating children about personal finance and managing money should start early. There are a lot of ways a child can learn about the basic concepts of finance, and video games are just one of them.

“[Educational videos] could certainly help, but these games have to be as attractive as the platform games and first-person shooters it will be competing with,” says Ashley.
Gurnos Stonuary, business services director for the Nexus Group of Companies, agrees, saying that “anything that gets children to start thinking and learning about personal finance is a good idea.”

“Video games and educational tools are very well able to support good financial planning and can play an important part when they are incorporated into an overall plan to teach children about money,” Stonuary says.

However, he points out that a child’s home remains the most important learning environment for shaping an individual’s attitude and values towards money. He notes that it is in the home where children learn how adults spend, borrow, save, give and invest their money.

“In view of this, it can be hugely beneficial for children to be included in family discussions about money from an early age. This helps them start to understand how income is used and the financial goals the family has identified to work towards,” Stonuary says.

Ashley suggests that parents assign children some jobs to do, to earn their pocket money. This will make them think twice before wasting what they’ve earned on unnecessary stuff.

“Also, get them involved in the family finances. Do not be shy about money. If they know what income the family has and how much goes on the mortgage, paying the utility bills, and why there are bills, they will learn that money is finite and the parents are not simply being unfair when they do not give them more. They will also learn about paying bills and start to understand mortgages,” he adds.

It is also a good idea to start a savings plan to save towards the child’s future education. It is necessary that the parents get the children involved, make them aware what has been contributed to the savings plan, what the value is, where the money is invested in and why the value is going up or down.

“Not only is this going to benefit the parents and child when it comes to having to pay for secondary or higher education, it will teach them about both saving and investing,” Ashley points out.
Stonuary also recommends giving children some allowance or pocket money. The allowance should cover perceived necessities, with an extra amount to encourage them to learn to save and invest.

“Providing children with their own regular allowance at the beginning or the middle of the week encourages them to learn how to stretch their money and to be in a position to enjoy things at the coming weekend. Parents should not come to the rescue every time a child runs out of money or they will never learn money management,” Stonuary advises.

Guidelines

“When children receive money, for example as a gift, parents should help them set guidelines on how it will be used. If it is a large gift for say a birthday, encourage children to invest some of the money. In addition, identifying money to be set aside for charity can influence a child to develop a concern for others,” he says.

He also suggests creating a money plan with the child. The goal is to encourage the child to consider how much money has to be spent, how much can be saved and given to others in the form of gifts, charity donations. It should also encourage the child to think about what he wants to achieve with the money, what the financial goals are and how much he needs to spend to pay for what he wants and reach his goals.

“It is never too late to help children appreciate the value of money and with last year’s unfortunate current economic downturn, even children who have enjoyed a high quality of life in the UAE can start to appreciate that financial plans can suddenly change,” Stonuary says

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>Financial Fluency – Teaching Children About money

June 22nd, 2009 Posted in kids and money, teaching children about money
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>Financial Fluency – Teaching children about money

It is a widely held belief that the earlier children learn a foreign language, the quicker they will be able to pick it up and achieve fluency. The same is also true when it comes to teaching children about money and developing financial fluency. Teaching children from an early age how to save and budget in a fun and educational way can lay the foundations for sound money management later in life. A University of Minnesota study indicates that with as little as 10 hours of financial education, teachers and parents can positively affect children’s future saving and spending habits.

A good place to start teaching children about money is by demonstrating that money is used in exchange for goods and services, showing them that in making their own purchases they are in fact trading with the shop owner and receiving the product in exchange.
As an example, next time you are shopping, try to have the exact change for the product and give it to your child. Let your child hand over the money to the cashier and after you have left the shop, have a chat about how the money paid for the item. It is important to always approach teaching children about money with openness and honesty, giving a constant and clear message. Explain to them why they can or cannot have certain items they wish to buy. You can’t always say yes to a request for money and if it has to be a no, it does few favours being over indulgent, but equally the ‘because I said so’ clause has little educational merit.

Before long your child will have a basic understanding of money. When this happens you may wish to start explaining the bigger picture. You might consider showing children how the whole family benefits from money via a visit to the supermarket. Once there pick out two similar products, perhaps a well known brand and an own label and allow the child to make the choice. If they choose the supermarket’s own brand, allow them to make a further purchase with the saved money. This might be a useful starting point for a discussion about value vs. price.

Consider also the type of signals about money that your child picks up on. You may feel it’s important to let your child know family money matters are private, and not for discussion outside the home. If however, as parents you talk in hushed tones over bills and bank statements, your child may deduce that finances are something to be secretive and furtive about. Similarly, if they pick up some stress and anxiety over money, this too is a value that can be carried forward into adult life.

7 tips to help teach children about money

1) Fun, fun, fun – make a game of both saving and spending. If only spending money is fun then they will not associate any pleasure with saving.

2) Routines – When they receive money as presents or from the tooth fairy establish a routine, like putting some or all of it in their piggy bank or savings account. They will most likely take these traditions forward into their own families.

3) Consistency – If you pay pocket money in return for helping around the house make sure they actually do the work. Even very young children can be responsible for tidying away their own toys or clothes. It’s a good idea to pay a set amount on a regular day but encourage their entrepreneurial side by giving them the opportunity to earn more if they seek it.

4) Look after the pennies – Turning off the lights, saving their pennies and giving small donations to charity collections are small things that they can do to create positive habits which may last a lifetime. Ensure that you explain why you are doing it and what the benefits are. Charitable giving can illustrate to your child that there are others less fortunate and introduce the idea to be grateful that they have more than enough.

5) Consequences – When your children ask for something, rather than say no. Ask them if they would like to buy it from their own money and explain what the consequences are. You may find that they are more reluctant to spend their own money than they are yours!

6) Praise, praise, praise – We may learn by our mistakes but by praising we reinforce positive behaviour and will encourage children to do the right thing out of choice ‘because it feels good’. This can be applied to saving, spending wisely and giving to charity.

7) Spend and save – when your children are receiving pocket money, teach them to save either some or all of it. It is always a good idea to let them spend a little however, as this encourages a work-like mind which will set them in good stead later in life.

For a fantastic new book designed to teach children about money in a fun and entertaining way, please visit thefinancialfairytales.com

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