Dealing with money today is more complicated than at any time in history. Because your kids have more to learn about payment methods than you or your parents did, you may be finding it difficult to teach your child what money is used for and how it’s done.
Does the Value of Money Change in Line with the Different Forms?
Your child has probably already had some experience with using money to pay for something he wants. Or he’s observed you paying for groceries and might have asked some questions about how you can give paper to someone and get great goodies like ice cream and pizza.
So you’ve probably already explained a bit about the value of money. You can illustrate the fact that different forms of money can have the same value through a simple exercise.
Your child has probably already seen you take money from an ATM. Be sure to explain to him that you are not getting that money for free. He needs to know that you can only take money if you’ve already deposited money into your bank account.
In order for him to get a grasp of how an ATM functions –
Debit and Credit Cards
Your child will already understand a little about debit cards if he’s seen you use it at an ATM to deposit and withdraw money from your bank account. Let him also see you use it to pay for goods in a store.
Credit cards are a little trickier for your child to understand because how much you can buy with the credit card does not depend on the money in your bank account. You will need to judge when he is ready to advance into the concept of credit.
There is an Australian start-up called Spriggy that helps children save and spend money and issues a child debit card linked to a parents account. The child can earn money (think pocket money etc) and the parent transfers to the child’s account which the child can then spend (and parents track) on their own debit card. I am creating an account for my daughter – will update you on what I think in the next blog post.
Mobile payments come in various forms depending on what kind of smartphone a person uses
Explain to him that the phone has an app or a virtual wallet that connects to your bank in order to make the debit or credit transaction at the point of sale.
As you expose your child to the mobile payment type on your smartphone, he will learn little by little that the value of an item does not depend on the payment method but on the actual items that are bought.
Start Your Child Saving
You can start training your child into good savings patterns when he is still very young. If you give him weekly pocket money, then discuss with him how much he can set aside for savings each week in his own savings account at the bank.
Let him know in advance that if he meets the goal that you’ve agreed on, you will deposit a bonus into his account. This will start him off in the right direction to save on a regular basis.
There is no better time to put financial literacy on the agenda for both yourself and your children. As the saying goes "give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime". Teaching your children about money sets them up for the future. Ensuring you are investing in your financial literacy, gives you the means to better live the life you are looking for.
Today, we have a special treat. A guest post from the experts at CodeWeath Property Investment Advisory.
Kids learn to ‘save’ – Parents learn to ‘invest’
One of the greatest gifts we can give our kids is to teach them financial literacy, and one of the greatest gifts parents can give themselves is the education to invest for the future. Building the foundation early in kids can be easy and therein developing the right behaviours into adulthood, even easier.
Parents are hands-down the most influential figures in regards to their children’s behaviour with research showing this also extends to money management. Even the wisest financial lessons won’t shape your children’s habits if they don’t observe YOU making fiscally responsible decisions. A perfect example is using a family budget to understand what income comes in, what expenses go out, paying bills on time and to demonstrate the need to save for life’s pleasures as equally as for any unexpected events.
Five (5) important financial values critical for kids to learn;
1. Responsible spending
The first concept is that people buy things with money. An increased use of credit cards, internet banking and online shopping means kids often don’t see actual money being exchanged for purchases. Even from a very young age shopping trips should be used as learning experiences.
We all know kids want everything (and want it now!) As kids mature they should learn the difference between their needs and wants. Once they have their own money, learning to differentiate between needs and wants will be a process of trial and error – and there will be plenty of mistakes along the way. The hardest part for parents is resisting the temptation to bail them out when the piggy bank is empty!
2. Work/Money connection
From a young age, children should understand money comes from work, not mum and dad’s pocket or an ATM machine. Begin by explaining why you work, i.e. to make money for the family to buy things you use every day and to save for the future. The best way to help kids make the work/money connection is to pay them pocket money for chores. Kids under six need to be rewarded immediately for the work they have done to make the connection. Older children can receive regular payments so they can learn to budget. One idea is to provide two different containers so they can split their money – spend & save. This reinforces the two ways to divide (and appropriately allocate) their income.
3. Importance of saving
Kids under seven cannot really comprehend that one day something may happen and they may need money in reserve. This doesn’t mean they cannot get into the habit of saving. Identify things they want and help them set up a savings plan to get them. Kids love instant gratification so they need to learn about the pleasure of delayed gratification! Once they are older enough to understand the concept, open a savings account with your children. This shows them what a deposit is, how interest is earned and also introduces them to compound interest so they see how they can earn interest on their interest.
As they mature, involving your kids in discussions about the family budget helps give them the big picture about costs and spending. Budgeting teaches children the following key lessons;
Help older children create their own budgets using spreadsheets, online programs or mobile apps and watch them take ownership of their finances
Concept of debt
So, your spendthrift has just blown their allowance or their first pay? What do you do? Rather than providing a handout this is an ideal opportunity to introduce the concept of debt. Explain you are prepared to lend them money but also explain there is a cost – when it is paid back, they will have to pay more! This is gentle preparation for the day they need to front up to a bank and ask for a loan.
New concepts and the right age to introduce
Money Savvy Pig
Moonjar Classic Moneybox: Save, Spend, Share
Smart Piggy Trio Bank: 3-in-1 Money-wise Educational Piggy Bank
4. Ask for Money Instead of Gifts
Your child can then determine if they want to spend or save the money received. Ideally, they should spend some and save the rest so they can purchase something of higher value in the future.
5. Save Money Shopping for Bargains
Many shops have sales prior to Christmas. Sometimes they are on only for one day or only on selected items so knowing what you want is important. Firstly, write a list of everyone you need to buy presents for and the types of things you want to buy them plus the total amount you want to spend.
Then start searching online for the things that might be suitable. Finding the right model, colour etc and knowing what the prices range from prior to buying them is really useful in knowing if you are getting a bargain. Then, wait for the right time. Starting Christmas shopping about 3-4 weeks in advance is worth doing to make some great savings.
Equally, buy gifts for the following year or Christmas decorations in the sales after Christmas. This will save you money for next year.
Save yourself this Christmas
Christmas is a joyous time but the lead-up to the festive season can be stressful and can really stretch your finances.
Here are some easy ways to spread Christmas cheer without blowing your budget.
Whether a loan is on a credit card or for a house or car, there is pretty much no way to avoid borrowing money at some point in every person’s life.
As a result, learning to understand the ramifications of borrowing money should be started early in a child’s life.
Before a child even starts school, they can start learning this important concept. It’s too early to discuss borrowing money, so they can begin to learn about this topic by borrowing toys.
Explain to them that they can borrow a friend’s toy for just a short while and that they’ll need to return it. At first, start with very short periods of time, but eventually extend the loan to the complete length of playtime, always making sure that they return the toy when playtime is over.
Once they start primary school, you can start to transfer what they learned about borrowing toys into the concept of borrowing money. Stop at a store with your child at a time when you know they don’t have their pocket money with them. Make sure it’s a store where they’ll want to buy something.
Explain to them that you’ll be happy to lend them a small amount if they want to buy something and that they can then repay you as soon as you return home. You might even have them sign an IOU for the amount of money they’ve borrowed. The physical paper with their signed IOU will make the concept more concrete for your young child.
Once you can see that your child understands borrowing and repaying money from you, you can then move to explaining the more complex issue of borrowing money from a bank for larger items and paying interest on the loan. You can explain that borrowing from a bank is how you were able to buy your house or car.
Make sure that they understand that paying interest on a loan means that the borrower ends up paying more for the house or the car than if they’d bought it with money that they’d saved.
When your child is in high school, they are likely to want to buy electronic items and may find it difficult to wait until they’ve saved enough for the purchase. In this case, they may come to you for a loan.
If you decide to lend money to them, make sure that they understand how repayments will work. You can set up a repayment schedule online that you both can access. On the payment dates, meet with your child and open up the online schedule to log the payment in together so that there will never be a dispute about whether a payment was made.
It’s never too late or too early to explain to them the difference between good borrowing and bad borrowing. Good borrowing is when you borrow money for something you don’t have money for now but in the future it will likely go up in value or produce an income. Shares, investment properties and even your family home are good examples of this. See more on investing. Bad borrowing is when you borrow money for something you don’t have money for now but what you buy doesn’t go up in value or produce an income. Things like buying clothes or cars on credit is this sort of loan. Sometimes you just need these things now but always remember that there is a cost to borrowing so these things will end up costing you more in the long run.
One thing to pay particular attention to is pay day loans or cash loans / same day loans. Businesses like this thrive on those who need cash quickly so charge astronomical interest rates. It is sometimes hard to get out of debt with this sort of loan. These are best avoided if possible.
These types of exercises about borrowing will give your child the kind of training they need to understand how to deal with borrowing money in the real world as an adult. Remember that training your child about borrowing is just as critical as all the other lessons you give your child so that they will be a money savvy adult.
See more on financial literacy basics.
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