Money management skills are an important life skill. 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.
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. I was sick of the tantrums in the shops when they asked for things and I had to say no.
Here are five tips to teach your kids about money, to give them the best start in their financial future.
Tip number one – Teach kids the value of money
ATM machines and credit cards make it hard for kids to understand that money has a value.
Kids often 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 it, that there is a limited supply of it and you do have to pay back anything you purchase with your card.
I encourage you to talk to your kids about how you earn your money. Get them to look at different objects and focus on the effort required to get them. For example, when my children were young, we started a money jar system. They would earn $1 for good things they did, such as chores or good behaviours I was trying to encourage. These things would then allow them to save, understanding the efforts behind earning their own money.
If they wanted a new toy which for example, was $20, they could see it as an exchange for good chores or good deeds, rather than an exchange for $20 which was hard for them to grasp. It would help them to put the purchase into perspective, and realise the effort behind getting what they wanted.
Once this clarity was developed, an important event took place. They were able to decide if they were willing to put in the effort to earn the money, or choose not to get the toy. Psychologically, this helps them understand the actual value of the goods they’re purchasing.
With younger kids’ money jars are a great idea where you’re using coins. As kids get older, getting a job and a bank account for personal use will make for an easier transition.
Tip number two – Teach your kids 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 to save a percentage of what they earn. Whether it is from a part-time job they do get, or pocket money earned from home chores.
This means they get into the habit and routine of saving a set percentage of whatever income they receive, to put it aside for something in the future. Helping them to learn how to save for bigger purchases, can be encouraged once this habit is formed. For example, if there’s something expensive they dream of, like an iPad or expensive product, encourage them to develop a savings plan with their own money. These savings habits will really serve them well later in life.
Tip number three – 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 number four – 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 number five – 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.