The idea of teaching children about how to manage money doesn’t really sound like the most enthralling activity imaginable, does it? In fact, it’s something that you do your very best to ignore yourself! Except for a select section of society for whom economics is a pleasure, most of us know what we have to and ignore everything else.
You might also think that your children are a bit too young to be learning about financial management. That’s probably true if they’re under the age of five, but any older, and it’s not a bad idea to start the lessons as soon as possible.
Managing personal finance is no longer simple. There’s more products, more choice, more confusing literature and - perhaps unsurprisingly - more consumer debt. So much of this problem is down to poor education about the realities of managing money.
Think about it - our kids will learn many things at school, but they might never need them again. How many of us have ever needed to be able to calculate the acceleration of an object, or know how to tell the difference between the species of penguins? Very few indeed. So it’s somewhat staggering that there’s no mention at all of all the things we definitely will need within a school curriculum.
It would, of course, be preferable that our kids learn about personal financial management while at school. They could learn about compound interest, how to talk to their bank, and how to calculate repayments - things they would actually then have a direct application for in life. However… they don’t, so we need to step in.
Why Is This Important When They’re Young?
Children are incredibly adept at learning. Their minds are open, ready to be filled with information, thirsty for knowledge. You might have heard that it’s far easier to do things like learn a language when you’re younger. That means you grow up with it and make it a part of you - which is exactly the kind of attitude that you want with financial management too.
How Do You Begin?
Start with their allowance. Ask them to keep a record of everything they spend, writing it down in practice of retaining receipts when they’re older.
From there, you can encourage them to save. Perhaps for every $10 they save, you’ll give them an extra $1. This can be a great motivator, especially if they are saving up for something special. They’ll really feel they did something to earn it when they have a chance to buy it!
From there, depending on age, just increase their understanding by having them assist you with your finances. Teach them how bank accounts work, how salaries work, how yours is divided up. You don’t have to give absolute figures if you don’t want to, just a ballpark that they can help budget from. You never know, they might have some great ideas!
What Else Should Be Included?
Talk about alternatives. If they help you go through a budget and it’s clear the money isn’t going to stretch to cover the expenses, then talk to them about what you’d do to help with that situation. It might be useful for you to know too. You could explain how they could take on extra hours at work; they could help calculate how many more hours of work are required. Or you could explain review and survey sites, asking for their help as you read this review first and throw yourself into earning a little cash.
Or, if you’re really strapped, you could begin a lesson about loans and overdrafts.
The key point is that all the teaching tools you need are already in your house: your financial documents that pertain to the running of the household. If you spend some time explaining how everything works, then you’re getting them involved - there’s no need to be shy about finances with your kids.
Try and make sure you cover a basic checking account, any loans you have, and how interest is calculated. You can then move on to subjects like insurance and how to tell if you’re getting a good deal. By sharing this with them from a young age, they can learn as they mature. The alternative is that they find themselves in their post-college job and have no idea how to handle money!
What Shouldn’t I Include?
The best guide for this is… anything that would scare them. If, for example, your family is going through financial difficulties on a chronic basis, then you might want to shield them from this knowledge. In these cases, you could still do the education bit, but use hypothetical figures rather than realities from your own bank statements. Kids need to be informed, but they don’t need to be panicking either.
How Much Time Does This Require?
Very little. Think of how much time you spend doing household financial admin - it’s probably not that long, even if it feels like it! You only need to involve them for few hours a month after you have initially caught them up to speed. When they have an idea of how things work, the rest is just a refresher. Depending on their age when they start, half an hour a month (once established) should be more than sufficient.
After all, you still want them to be able to enjoy their childhood. Their involvement in financial prospects should be a figurative one, in that they go through the motions with you and learn. That means you’re fighting for their attention, and you don’t ever want to risk them becoming bored. The moment you feel their attention is wavering, it might be time to call it for that lesson. You want them involved and paying attention; don’t stress too much about the longevity of the sessions. This is one that’s all about quality.
Encourage them to continue saving and recording their purchases at all times, but apart from that, you can rest easy if you wish. Just doing the diary record keeping alone will give them a better start than most kids get.