Back in the 1950s most families regarded the man of the house as the money manager. Wives would be given an allowance but the financial decisions were often handled by the man. Hopefully these days you and your partner make joint decisions about family finances and spending decisions. This change is partly down to more enlightened attitudes in society but also because both partners are more likely to be working. But do you also teach your child about money?
You may think that childhood should be a carefree time without worrying about things like money. But it is never too early to instill a healthy attitude to money and savings.
It’s never too early to set good financial habits
Albert Einstein referred to compounding as the eighth wonder of the world, and with good reason. Encourage your child to save 10% of their “income” in some way. That means for every fiver that Granny gives them, 50pence should go into a savings account. You can sit down with a calculator or Excel spreadsheet and actually explain how interest rates affect the amount they have.
Saving a set percentage of salary is a good habit for life and learning it at an early age will set a good example. 10% should be the minimum and in good times you should aim to save 20%. This gives you security that if unexpected expenses come up you will be in a position to deal with them.
I do understand that if you are suffering financial hardship and can’t imagine the luxury of being able to save money, it’s tough. If you are in a bad position financially then you need to establish a budget and create a financial plan to pay off any debts. You need to be honest and if you need help, consult a financial planner to help you find a way through.
If you are having to juggle bills and loan payments and keeping to a strict budget for food and essentials you may be tempted to keep this from your child. But you need to understand that this is a part of life and a good way to teach your child about money issues is to explain the situation.
You don’t need to sit them down with a pile of bills and statements, but there is nothing wrong with explaining why they can’t have the latest sneakers or a summer holiday. This will instill an understanding that managing money is an important skill to master.
Things you should teach your child about money
So what are the practical steps you can take to teach your child about money?
- As soon as they are old enough to understand what money actually is, buy them a piggy bank. Let them feed it with their coins and notes. Once or twice a year let them open it and count their growing nestegg. This can be used as an arithmetic lesson at the same time.
- When they are a little older help them open their own bank account. This is the stage where they should be able to understand the 10% rule. Money often turns up in Christmas and birthday cards at this time and the concept of saving for the future introduced.
- At this age they will also be able to understand that there are people worse off than they are. You may want to encourage them to make charitable donations to a charity they identify with. This can help them to appreciate money and realise how lucky they are. It can make them more empathetic and thoughtful.
- Teach them that money has to be earned. Aside from gifts on special occasions you should teach your child that money and work go together. Give them age appropriate jobs to do around the home to earn their pocket money. It can be easy for children in affluent households to think that money grows on trees. You would serve them better if you teach them that they need to work for money.
- You don’t however want to stamp out any entrepreneurial instinct that they have. Working for money doesn’t have to involve hard physical work. They can be encouraged to think outside the box and if they can come up with money making ideas then that is a good thing. There are children who buy goods in bulk and then sell them individually at school for a profit. Others expand from doing jobs within the family to offering to do jobs for neighbours. Provided you know what they are up to, this is a good thing. Be proud and grateful if you have a budding entrepreneur on your hands.
- Teach your child about the importance of setting goals. If there is something that they want to own or do, encourage them to write it down in a journal. Journaling is a very healthy habit that can be started at an early age. Recording things they are grateful for in addition to recording their dreams and goals makes for a well rounded individual. You should explain that in order to reach goals they need to make a plan and stick to it.
- Involve them in the money decisions when making budgeting and spending choices. They may not understand all the issues but they will start to realise that money is important and that sometimes you can’t have it all and priorities need to be set.
Lessons for life
You may have grown up in a household where money wasn’t really discussed and you could now find it embarassing to talk to your child about money. This is especially true if you have money worries. However if you teach your child about money, you will be giving them a vital education in life that will serve them well. This will set them on the path to a sound financial future and make for well rounded, empathetic adults.