John Lowe of MoneyDoctors.ie and father of three children, continues with his advice in this third and final part on what you should be teaching your children about money.
Read back on his tips and advice in part one and part two here.
So far, you have taught your children about earning, saving, and spending. Only four more disciplines left and your children should be well-equipped to cope with their future financial issues as they arise.
1. Teach them about borrowing
Teaching children the difference between good debt and bad debt is vital if they are to avoid the pitfalls of borrowing more than is sensible. The key things it is important for children to grasp include:
- The mistake of taking out loans to fund a lifestyle.
- The high cost of borrowing. The most expensive thing when you buy a house is not the house itself but the mortgage.
- The concept that when we borrow we are, essentially, giving away our most valuable asset: our future income.
- The idea that a credit card is not cool. It can take 20 years to pay off that credit card debt.
Children need to understand that when they borrow money they have to pay it back, so it may be worth lending them money for this very reason.
Is it worth teaching them about credit limits? Yes and no. They ought to understand, I suppose, what they are but, more crucially, they ought to understand that a high credit limit is not necessarily a benefit.
2. Teach them about sharing
If I were in charge of the country’s school curriculum, one of the things I would introduce is a module on sharing. This is what I would include:
- It is important to society as a whole to share. Not just money but also time, materials and skills. It is especially important that we share with those who are less fortunate.
- Giving is as much a pleasure, possibly more of a pleasure, than receiving.
- Tax is, basically, society asking us to share what we earn with others.
- How one shouldn’t always expect public recognition when one gives. It is often kinder and better to keep it to oneself.
3. Teach them about interest, compound interest and percentages
If children had to learn about just three financial concepts, it should be these:
- Interest
- compound interest
- percentages
There are many articles written previously and available copiously online.
4. Teach them that money won't make them happy
We’ve covered all the subjects in this article to such a degree elsewhere on this website that I haven’t felt the need to say much about any of them here. But there is a concept that I feel I should say more about and that is how money doesn’t bring happiness.
It is a complicated thing to explain because it is, basically, counterintuitive and also goes against much of what society teaches. This is how I got the concept across to my own children.
First of all, I got them to think about all the good reasons why we would want more money, including:
- Survival: How would we pay for food, somewhere to live or clothes, if we didn’t have money?
- Improving our circumstances: For example, if we want an education or to buy our own home, we must have money.
- Luxury items: Money pays for all sorts of things - from mobile telephones and meals out to holidays and home entertainment systems - that make life more pleasant.
- Looking after others: We need money to support our families, to give to charity and to help those who may need it.
- A sense of security: It is human nature to worry about survival. Even wealthy people are sometimes concerned about it. Having plenty of money goes a long way toward making us feel more secure.
Second, I pointed out that if you spend more than you earn, even if it is only a small amount, the result can often be stress and worry; whereas if you spend less than you earn, again, even if it is only a small amount, the result can be more reassuring.
Then I got them to think about all the things in life that are more important than money. Things that money can’t buy, such as:
- Good health: As the old saying goes: your health is your wealth.
- Love: It goes without saying that no amount of cash will make people love you.
- Friendship: Anyone who likes you only because of your money isn’t a real friend.
- Self-worth: Having money and all that it can buy won’t automatically make you feel good about yourself. This comes from inside you.
Finally, I urged them to strike a balance. We must have money to survive. It also makes all sorts of things possible, such as the ability to help other people or live somewhere nice, or travel. But there are lots of very important needs - health, love, friendship, and feeling good about ourselves, to name a few - that money can’t buy.
So, when dealing with money, it is important to strike a balance between having enough and having too much. Keeping things balanced is a priority.
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
