Many parents I have spoken to ask the question from time to time, "is my child spoilt?" or remark "my child thinks money grows on trees". It's not that surprising considering that we live in a time when when buying items via the Internet is immediate and advertising is everywhere you turn.
I was confronted just the other night by my two year old who was watching one of her kids shows on TV. Every ad she saw the words that came out of her mouth were "I want that".
Wanting things is not new, and not always knowing the difference between wants and needs is not new either. But as parents, one of the ways we can educate our kids about money is by explaining the difference between things that are made and things that are bought. Show them something in the garden, like herbs or flowers. Discuss with them that If we grow these ourselves, we don't have to pay for them. But if we get them from a shop or somebody else, we have to pay money for them. You can round out the lesson by pointing out that if you have more herbs or flowers than you need, you can sell the excess in return for money. This is one way to earn money.
Kids need to get to grips with this key concept of the exchange of goods and services for money. It's also a good way to tackle that "my child thinks money grows on trees" problem - you're linking the idea that ultimately money is bound to finite amounts of goods or services - in this case how many flowers or herbs are available in the garden.
In everyday events, talking to your kids about where money comes from, what you spend it on and why you save is the best lessons a child can get at a young age. Watching their parents as role models in and of itself helps to create good money habits. A practical way to show kids that money cannot buy everything is to take them to the shops or give them some money to spend at their canteen. Give them say $2 at their school canteen and let them make the decision about what they can afford and what they cannot. Being able to make these choices and then understand that when the money is gone, it's really gone, is the first step in training a money superstar.
We've created a simple guide to help know what to teach your kids about money as they grow. We hope you find it useful.
Doing some quick sums I discovered that if you saved roughly $480 a month from when your child is 5 until they are 20 with a 2% interest rate, they'll have $100,000. This changes slightly to around $440 a month at 3% interest. Given a low interest rate environment, getting kids to save this much money each month might be difficult. But if they do this it is a nice deposit for a property or a good start for tertiary education.