How to raise money-savvy children

I had an awakening a couple of years ago when my eldest asked me to buy her a board game in Farmers. My standard response was, “Okay. Put it on your birthday list and we can discuss it later.” (That vague, non-committal birthday list that no one could ever remember). She questioned me, “Why should we wait, Mum, when you never do? You buy everything you want.”

I didn’t have a leg to stand on. I realised I was failing to impart really important information about money. She couldn’t see inside my head to discover that my shopping decisions were based on a budget and a careful spending and saving plan. From her perspective, it was as if I would announce I needed new boots and simply go to the shops and buy them right away. I knew I had to lift my game.

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Teaching money skills to kids in a world where instant gratification is king, is tough. We have fast food, cell phones and emails, all of which discourage waiting around. Compounding this, most of us don’t use cash, preferring to simply swipe a card. So many children grow up believing money grows in a money machine and that there is an endless supply available. Even though it’s tough, it’s really important to encourage our kids to have a healthy relationship with money. We need to help them feel confident about managing their finances – a skill that will set them up for life and turn them into socially responsible people. Here are some helpful things to consider to get you started.

Be a great role model

Your child will follow your example, not your advice. Always remember they will follow what you do, not what you say.

Teach your kids about money

  • Talk to your children about money from a young age. Show them coins and notes. Talk to them about how you earn your money as a family and what you use it for. Ask them to count out change to pay for things. Money is not a taboo subject nor is it boring. It’s fundamentally intrinsic to our lives.
  • Teach your children that income less expenses equals a surplus or deficit. A surplus is good and means you have choices or options. A deficit is a problem.
  • Set a budget and stick to it. Involve your children. Let them know how much you are spending on groceries, children’s activities and holidays. Money is not infinite and we have to make choices.
  • If you’ve gone over budget at the supermarket checkout, ask your children to put something back (however awkward). It’s a great life lesson.
  • Each holiday season, a lot of my clients will have a conversation with their children about how much the family has to spend over the holidays. What special activities do the children want to do? They can’t do everything so they have to make compromises. It’s great problem solving.
  • Try and use cash for everyday items such as groceries, takeaways etc. It’s easier for children to understand the value of money when they can see you using it.
  • Show your children that everyday behaviours can mean you have more or less money left over at the end of each week. Shorter showers, washing only dirty clothes and switching the lights off when they leave a room, all mean you spend less on power. It’s important for your children to realise it’s not how much you earn that determines your financial future, it’s what’s left over!
  • Stand up to your kids when they say to you, “But everyone else has/does…” It’s okay to reply, “In our family we choose to spend our money differently.”
  • Children are easily manipulated by advertising. Talk to your kids about the messages behind different advertising. Happiness is not in things but in us.

A sense of entitlement

Every child has the right to love, respect and kindness. Issues arise when your child feels that the world owes them stuff and they have the right to demand it!

Tips to avoid the entitlement mentality
  • Spend more time than money on your kids. Don’t buy them things out of guilt.
  • Don’t bribe your children with money. You rob them of the satisfaction of achieving from self-motivation. What happens when you remove the reward? Do they give up?
  • Don’t rescue your child from hard work. A colleague’s seven-year-old daughter wanted to save up for a recorder so her mum told her she’d pay her $1 to tidy her drawers. It took her over an hour, she had two meal breaks and cried but she finished and was very proud.
  • Don’t pay bills or fines your kids should pay. At least ensure they pay you back if they can’t afford it all up front.
  • Teach your kids to look after their possessions.
  • Teach gratitude. Again it’s in the little things – give to a family cause, share your own things, offer your time, not things.
  • Delay satisfying their instant requests or wants. Children learn to appreciate things they have had to wait for.

Struggle and failure aren’t fun but they build resilience and teaches your children they can overcome setbacks themselves.

Honesty and values around dealing with money

We all want our children to be honest and have strong values. The small things we do go a long way to teach our children the importance of honesty and being trustworthy – like replacing something you broke when you borrowed it or giving back money if you were given too much change. I had a client who shared her card pins with her children. Her daughter gave her EFTPOS pin to a boyfriend who stole $200. Our children will do what they see!

Be honest about the bad financial decisions you’ve made – that credit card you couldn’t pay off, or the expensive dress you only wore once. Let them learn from your mistakes.

Pocket money and allowances train your kids how to use money

I believe that children should help with everyday household chores because they are a member of the family, not because we pay them. In our house, pocket money is a privilege which we may stop as a consequence of not doing chores. Chores like making their bed, clearing the table and taking out the rubbish, we expect our children to do as part of our family team. Our children also have the opportunity to earn extra money through bigger chores like washing the car. My eldest daughter wanted an iPad. My husband said we’d match any savings and so she did extra jobs around the home/at her grandparents etc. It took her almost a year but she got there.

Pocket money usually starts around five to six years old and a good rule of thumb is $1 for every year of age but this is something that your family needs to determine. The three jar system works well. You set up three clear jars, labelling them ‘saving’, ‘spending’ and ‘giving’. You can determine with your child the right split and your child should decide where the ‘giving’ portion goes. This is a great antidote to entitlement.

As children get older, particularly around high school, it may be appropriate for your child to get an allowance to pay for things like clothing and entertainment. This should be a reasonable amount so your children learn to budget, make choices and live with their choices. Yes, they will probably get it wrong at the beginning but much safer to do this with their clothes at 14 rather than not being able to repay a loan at 18!

Tips to make it work
  • Pay it to younger children in coins so they can split it into savings/spending/giving.
  • Set the day and time that pocket money is given out each week (try not to forget!).
  • Don’t rescue your children. Let them make mistakes.
  • You can set guidelines – for example, they can’t spend all their money on junk food.

Encourage enterprise

Learning to set goals and finding ways to achieve those goals is important. Easy handouts disempower rather than motivate. If our children are given easy money, there is no need to work towards a goal. One of your goals for your kids is to have them financially independent – not leaning on you way past them leaving home.

Encourage your children to think creatively to find ways of earning money. My daughter is very entrepreneurial, and it has cost me big time, but I know it will pay off in the long run! Her first attempt last year was a cookie stall outside our house. She lost interest halfway through. Not quite soon enough to remember she’d left our little wooden kids table out on the grass verge, which was promptly taken, despite it not being inorganic collection time!

The next attempt was baking, where instead of making two dozen cookies according to the recipe, we had a malfunction and made a ginormous cookie that took up the whole tray (not sellable but it tasted great). Most recently, instead of paying to have someone deliver pamphlets for my business, my daughter and I delivered them ourselves, and I paid her to help me. We both (semi) loved it.

You are your child’s greatest teacher and these financial skills are non-negotiable. The playing field has undoubtedly changed, with the heavier burden of increased student debt, house prices and an uncertain retirement benefit in the future. Our children have to hit the ground running financially once they leave home. What you do every day counts!

Attend a Toolbox parenting course

Toolbox courses inspire and equip whānau. They are bursting with great advice, humour and encouragement, offering practical strategies and insights into developmental stages. Parents leave reassured that challenges are common to all families and that they’re not alone on their parenting journey. The courses are run over a number of weeks in a relaxed and conversational small group setting with a trained facilitator. The five courses – Building Awesome Whānau, Baby and Toddler Years, Primary Years, Intermediate Years, and Teenage Years. Find out more and register here.