My nephew Adam – he supports Spurs so is cool - and his wonderful partner Hannah had their first baby on 27th June last month – a daughter and my latest grand-niece they named Grace.
It then struck me - what kind of world is Grace going to inherit in the years ahead?
With the pace of technology and standards of living so vastly different to the upbringing of previous generations, one thing that never changes is this simple fact – you need to earn money to survive in the new world. That is, of course, if you have not inherited it or found a benefactor who pays for everything.
The trouble is in this fast-paced life we lead - with all the social networking, technology, interests, hobbies, not to mention socialising with family and friends - understanding money, let alone the jargon, is right at the bottom of the pile. Let's face it, it seems boring! But the only boring thing about money is not having enough of it.
Teaching children the basics about money – one of the most important concepts that have never been championed by any generation or government – is in my humble view, essential for the later life of your child.
Here are 10 simple steps to teach your children and lead them on the road to financial happiness:
1. As soon as your child can count, introduce them to money - repetition and observation play an important part in their learning experience. It is at this stage with aids such as the abacus, simplistic play and learn activity toys and First Blocks, that the concept of money can first be mooted.
Don’t be afraid to show them notes and coins – they are learning all the time. After a while, you can teach them the value of coins in particular and encourage them to save their coins in a savings box or piggy bank.
Giving them an allowance or pocket money is a good idea as this can be used to help parents in the quest to educate their children financially. As they grow older, the pocket money can be increased. (As a rule of thumb, a national poll recently determined that national school pupils received € 10 per week pocket money, secondary level € 20 per week and third level, a whopping € 60 per week! Roll on those student loans…)
2. Communicate with your child - give them values concerning money. Did you ever notice how parents influence thoughts on money? If you came from a frugal background, will this not, as a child, influence you in later years when it comes to reckless spending?
Being taught at an early age how to save, how to make your money grow and importantly, how to spend it wisely is crucial to a balanced attitude to money in later life. There is a massive difference between needs, wants and wishes of your child. Teach them to know the differences - this will help them prepare for good spending decisions in the future.
3. Shop with your child - when you go to shops or even the supermarket, show them price tags, and explain to them what the check-out person is doing and how at the end of the items, your bill is presented for payment. Also how you pay for those groceries – cheque, credit card or cash.
Curiosity will eventually enable your child to wonder where the money is coming from (the parents might wonder too!) You can also explain discount coupons, special offers and "sale" prices along the way. Children are observant, will copy your behaviour and, as a result, learn many of the concepts you are trying to impart.
4. Set small financial goals for your children - this is at the heart of learning all about money and saving. When they want that exclusive toy, or go on that special trip, you can turn this wish into the object of a goal-setting session. This makes them become responsible for themselves and is at the core of budgeting for later life.
5. Explain the jargon of money – children do not know how the concept of a credit card works. Imagine you are explaining how it works to a Martian: slowly and simplistically. Run through all the money terms so that when your child hears the name of that money term, a bell is rung…
For a guide to demystifying jargon, click here.
6. Play games with money motifs e.g. Monopoly - Make this a fun thing and include the whole family – this will encourage learning and allow them to make mistakes, a valuable teaching tool while at the same time being on hand to help and guide them through these mistakes. Even online games should be encouraged.
7. Open a bank, post office or credit union account - they will feel so important when they are brought to open their own savings account. Explain the concept of interest and how if money is left for a certain period of time in a deposit account, further money is earned called interest.
If that interest is also left in the account, the interest earns interest – this is called compounding and as Albert Einstein once quipped "Compounding is mankind’s greatest invention as it allows the reliable systematic accumulation of wealth". From the age of 7 - the age of reason.
8. Save on a regular basis - if they have pocket money, they should be encouraged to save part of it for specific later needs. A history of regular successful savings will lead in time to a good credit rating when the child is firstly, old enough to understand credit ratings and secondly, at the stage where they are looking for a loan!
Always allow them to withdraw – you could discourage them from saving. You can still go through the pros and cons of spending decisions with them. They will also have a record of transactions from this deposit-taker – an important skill to be learned as this can transfer to keeping records for all their activities e.g. purchases, loans to other family members, donations, birthday gifts etc.
Prudent parents encourage their children to save by matching what the child is regularly saving.
9. Advise your children on loans and how they work - that loan to your big sister may never be repaid, or Dad borrowing €10 from your piggy bank may be forgotten. Records are important here, plus the concept of receiving interest on loans given so your child can expect, for instance, €12 back from Dad!
It also works the other way – interest on a loan can over a period of time be well in excess of the original amount borrowed. Part of this discussion would include credit card debt, mortgages, overdrafts and ordinary personal loans and the differences in interest treatment.
10. Talk regularly and openly about money in your family – even the macro picture: how the economy is doing, nationally, locally and even globally. Parents should set a good example too – don’t lie about purchases, sharing money, maintaining core values (the basics - compassion, hospitality, respect, justice and excellence) and teaching generosity and generosity of spirit.