We can help our children to become good money managers by beginning to train them from they are young. The habits they develop will help them to become responsible managers of their finances when they become independent of their parents.
There will be many opportunities to train children to manage money; parents should be alert and seize these teachable moments. They come in many forms and at different times but it is best to wait until the child is in a good and receptive frame of mind to capitalise on the teaching opportunities.
It is important that parents and other adults create an atmosphere that makes it easy to relate to children and that they themselves practise what they teach and preach. Nothing beats a good example. Model the kind of financial management skills you want to see in the children under your care and influence.
Introduce your children to family financial matters early. Introduce concepts that they are able to understand at their level of development. Let them understand why the family has to plan how it spends what it earns. Show them simple examples initially and more complex ones as they grow in their understanding. In time, they will understand the value of a budget and of money management.
It is important to have family meetings regardless of the size or make-up of the family. When family members know what is happening in the family, they can make surprising and valuable contributions and become more willing to support the goals and plans of the family. I am not suggesting that all the details of the family's finances should be bared to children but it is useful to let them have a general idea of the kind of commitments that the family has and the priority attached to them.
Show them what a pay cheque looks like. Help them understand that not all that is earned comes to the family as there are deductions that the Government requires as well as deductions for health insurance and pension, for example, to secure the welfare of the family in cases where this is done. Put a sum of money representing your pay into piles and use it to illustrate what goes to each item of expense monthly. Let the children understand why some expenses have priority over others. This should create teachable moments as the children will ask questions to understand what is happening. Expect some interesting questions and suggestions.
Use the media to help you train them. Discuss advertisements on radio, television and in the newspapers to help them understand how to make spending decisions and to know the difference between needs and wants. Ask them pertinent questions about these advertisements, for example, if the family should or should not make a purchase and why.
Take them shopping with you. Make time to explain why particular purchases are made and why you make a shopping list. Let them understand why you have opted not to make certain purchases. Help them understand the value of delayed gratification. If the family chooses to defer spending on an item to facilitate buying something else, be sure to let everybody knows when that item has been purchased and point out the value it will have to the family. Have a celebration, after all. Show them to save as they spend and encourage them to save to buy items that they want.
Encourage them to save, at home first but later at school or in a financial institution. If they save at home, you may add an agreed sum at predetermined intervals to teach them about interest. Help them understand the value of earning income. I believe children should be given duties in the home but also believe that, where possible, opportunities can be created at home or outside of the home for them to earn income. Children should be able to see the link between money and labour but it is important to recognise that they cannot learn money management if they do not have money to manage.
Teach your children to develop a culture of giving. Help them identify what they will give to and how much they will give. Let them know the importance of keeping within the limits they have set, which means they must learn to say no when such an occasion arises.
The greatest demand that teaching children to manage money will make on parents and other persons who have significant influence over them is time. Teaching takes time and patience but less of both is required of the teacher who is a true model of what he teaches.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free personal financial planning and advice. firstname.lastname@example.org