We are in the first few weeks of 2020 and thoughts of resolutions and self-improvement still dominate. If you want to get you and your family off to a smart start this year, you may want to focus on your children's financial education needs. John Lowe of Money Doctors explains.
Over 300 years ago, moneylenders use to ply their trade on benches in the marketplaces of the main cities in England. The Latin word for bench is bancus. When they ran out of money, or could not repay loans, they broke the same bench to signify they were out of business. The Latin word for broken is ruptus – now you know where the word bankrupt came from.
Trouble is in this fast-paced life we lead, with all the social networking, technology, interests, hobbies, not to mention family and friends, understanding money, let alone the jargon is right at the bottom of the pile – let’s face it, it’s boring.
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 for 2020 and beyond:
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, 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!)
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, did 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…
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 post office, bank 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 however pitiful currently 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".
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.
Inversely 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 even globally. The differences between East and West. 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.
Life is short. Enjoy your children but teach them well.