As a parent your job is to teach your kids to act and behave like every other human. Starting with walking and toilet training up until they are teens and need to be taught about drugs and sex (if you’re brave enough). But what about money and finance? It’s not in school curriculums and often is neglected as an important issue to tackle at home. Any gloomy economic news usually boils down to poor actions by the consumers such as over-borrowing. Of course the banks are the real crooks that let it happen but we believe kids should be taught financial lessons early so that the combination of the greedy banks and the uneducated consumer could be less disastrous. At the age of 25 I am most likely one of the closer working expats to childhood here in Jakarta and I cannot remember being taught anything about saving and spending. Money simply meant buying things that I wanted. It was only once I started working could I get loose grasp and then working in financial planning could I get a true understanding of how personal finances can be so important. So for the sake of the children here are my 5 top tips to get kids to understand finance and money as they grow up.
You may have to save to get something you want.
From an early age this can be taught in everyday activities. Stressing the important of waiting in a line for a favourite meal or to play on a certain swing set can teach them how patience can be rewarded. Once they are old enough for pocket money or allowance you could identify some item of significance that they really want. Have a jar labelled with a diagram containing the price of the item divided by the number of weeks with tick boxes etc to display their progress towards their goal. They now have their figure that they must invest each week to gain enough money to purchase their desired item. Doing this over and over through their childhood should be able to establish a good understanding of saving before they are let loose with a salary. The present day 10 year old’s ideal toy seems to be the latest iPhone but whatever it may be it should be achievable within a few or several weeks of their current allowance to avoid frustration.
Shopping around to save money.
We all know the value of this method as it works for cars, insurance, flights, phones and just about anything. Combining the previous lessons on saving with this method of comparing prices can result in the kids having extra money. They can then use this to buy whatever it is they wish. Doing this over and over as they grow up can slowly drum in how much money can be saved by spending some time looking at the market. Again, as young adults this will help them choose essential products and services more carefully.
How you spend your money is important.
Money is limited. As an adult, whether your salary is large or small it is limited to that figure. It means decision and choices must be made as to how money is spent. You can teach your kids about these choices by simply involving them in yours.
When in a supermarket and looking to buy a product such as ketchup or orange juice, you could explain to them the pros and cons of buying the brand label compared with supermarket’s own label. For example if they taste the same then it makes sense to buy the product that is more expensive. However could it be that there is a reason for this, perhaps it contains less sugar or high quality ingredients. Many factors to be discussed with your little one but the point is to get them involved in those decisions on how money is being spent. Get them thinking whether certain products are necessary or luxury. When they are old enough to earn and spend their own money they will have a better grasp as how to spend it.
Avoid using Credit Credits.
As kids get older, approaching the times when they will go to university, get a job etc the lessons need to become more realistic and relevant to the years to come. Credit cards are obtainable by those over 18 and often given to those under by parents for emergencies or even necessities. Whether this is the case or not, it is without doubt that teaching kids what a credit card really is going to be very valuable. Compounding high interest can keep people trapped in debt. There are many Credit Card Repayment Calculators online you can show your kids. They can illustrate how long $1000 takes to repay if paying the minimum repayment each month, almost 10 years if you’re lucky enough to get 20% APR.
The tax man will always be present.
The quicker kids can understand the concept of tax the better. Rather amusingly our boss likes to bite a quarter of his kid’s chocolate bar and say “you’re gonna learn about the tax man sooner or later”. And he is right, I remember getting my first pay check and wondering why I couldn’t have all the money I had earned and feeling a bit disappointed. But that’s life. Nothing is certain but death and taxes. Unless of course you have a Monaco post code this quote from Benjamin Franklin is very accurate.
Everyone has their views both positive and negative of how public money is being spent however showing your kids some of those positive aspects can ease that disappointment and get them ready for the merciful tax man.
So there are few ideas to teach your kids about their attitudes to savings, investments and tax. There are many more ways to prepare them for the real world, but this should be a good start and help you think about some more. If the schools won’t teach them this and the banks don’t want them to know this then it’s all down to you to arm them with the right ammunition.