How to: teach your kids to manage money

It’s never too early to teach children how to work with money. Here’s how…


It’s never too early to teach children how to work with money. Money management may seem like a big concept for small people to grasp, but a recent University of Cambridge report revealed that a child’s relationship with money is formed by the age of seven.

Certified financial planner Frank Magwegwe, head of Momentum Personal Advisory Services, suggests these tips to teach children responsible money management:

Budget basics: The power of choice

Empower your children by giving them a difficult choice, such as choosing between a school holiday activity and a greatly desired toy. This familiarises them with the responsibility to make a choice and to live with consequences within financially acceptable parameters.

Explain to your child that he can choose only one of the two options, and that he can only get the toy or the outing at the end of the holidays if he saves a set amount per day out of his allowance.

Delayed gratification: The marshmallow theory

Building on the initial option to select one of two purchases at the end of the school holidays, teaching the value of choice and reward is probably the most important financial wellness lesson your child will ever learn.

In the 1960s, researchers from Stanford University in the US presented nursery school children with a tray of goodies. They asked the children to select one treat. If they ate it immediately, they wouldn’t get another, but if they waited only a few minutes, they’d receive another one. If they could delay their gratification for a few moments, they’d double their treats. The researchers continued observing the children over the years until they were adults and discovered that the ones who were able to delay their gratification were more successful in life than those who wanted instant gratification.

Activity: Take two jars, labelling one ‘Spending’. This is where your child’s daily school holiday allowance will go, allowing him to see his money grow. Label the second jar ‘Savings’ – this is where money earned for completing chores will go. Every time your child adds money to the savings jar, help him count how much he has and talk to him about how much he still needs to reach his holiday goal. From time to time, you could add money to the savings jar to teach the joy of delaying spending and to introduce the concept of interest. Your child should be given the opportunity to use this money for more expensive aspirations and later open an account to save and earn interest with a bank.

Holiday debt: Prevent expensive mistakes

“Gaps in financial education at an early age can lead to debt and bad financial choices in adulthood,” says Mr Magwegwe. Once your children are earning money by doing chores, introduce the concept of debt to prevent bad debt habits later on in life. It will take time for them to learn the consequence of their choices, but the ‘holiday mode’ expectation of receiving more stimulus and entertainment than usual, is the perfect place to start.

Activity: When your child requests an outing, or want to buy something during the holidays, present him with three options:
1) Buy it now (with ‘spending’ jar money)
2) Buy it later with ‘saving’ jar money, or
3) Borrow the money from his parents.

At first, children will tend to select the debt option, because they haven’t yet realised the consequences of debt. For this option, devise payment terms and implement the option like a regular loan, with interest.

For more helpful tips on financial wellness and other money lessons to teach your kids, visit the new parenting hub, EDUCATION360° from Multiply, at Multiply and EDUCATION360° offer parents all the tools, tips and tricks to guide them and their children on a path to success and financial wellness.

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