Teaching your child about money (1)

by Nimi Akinkugbe (nakinkugbe@punchng.com)

The elementary school years, when children are being introduced to mathematics concepts and coming to grips with numbers, are an excellent time to lay a solid foundation in personal financial management. Sadly, our educational system focuses almost totally on academic subjects and very rarely is any aspect of money management taught in schools.

If we want our children to grow up to be financially responsible adults, we must introduce them to the fundamentals of personal finance from an early age; they should have some understanding and practical experience in spending, saving, banking and investing. This will help them to develop a responsible attitude towards money and give them a solid foundation for making sensible financial decisions in future.

Give them an allowance. A regular allowance or “pocket money” is often a child’s first experience with financial independence as it gives them a certain degree of control over their own money and teaches early lessons in budgeting, saving and prioritizing purchases. In deciding how much to give your child, consider what items an allowance should cover for their age, and what your family can afford. Naturally, a child should not have access to excessive sums of money.

Guide and advise, but don’t dictate how the money should be saved or spent. You need to set some parameters around the types of purchases you expect them to make but as far as possible, allow them to determine their own spending choices. Encourage them to keep a record of how they are saving and spending their money; this will set the stage for budgeting.

Learning how to live within ones means is an important aspect of daily life and creating a budget is one of the best ways to achieve this. Sit down with your children and go over their wants and needs. What are they saving towards? How much can they afford? What gifts do they plan to buy? Build in some of their bills into their monthly budget such as the costs of maintaining their mobile phone.

Visit the market or grocery store with them and explain how you compare items based on price and quality. Talk about the purchases of the day, the way you select, and get value for money. Through commercials and peer pressure, children are constantly tempted to make impulsive purchases and will need guidance from you about how to make sound buying decisions.

One of the simplest ways to encourage a responsible attitude about money is to encourage children to save. Little children get excited about their “piggy-bank”; this traditional first savings method helps to build initial interest. Today some piggy banks have various compartments for saving, spending, investing and giving; the child then decides where their money goes.

Naturally as children get older, and begin to save more deliberately, it is important to visit a bank with them to make a deposit into an account opened in their name. Many banks offer incentives and attractive savings account options tailored for children.

Should you pay for chores? Chores offer an important lesson in cooperation, and develop in children a sense of responsibility as they live within their family community. Some parents pay their children for doing chores around the house whilst others prefer to give an allowance with no strings attached.

Try not to tie chores too stringently to allowances as this can make children feel that being paid for helping out at home is their right rather than their duty; some parents soon find themselves having to negotiate to get anything done! You do not want them developing the idea that they must be paid for everything. However, it makes sense to allow them to earn extra money for tasks that fall outside the usual household responsibilities and they benefit immensely from learning to earn.

Encouraging children to set specific, measurable goals drives a sense of motivation. Very young children tend to lose interest in goals that will take too long to achieve. For them, set modest, attainable savings goals. Over time, your child will learn to become a more disciplined saver and can save for longer term goals for large-ticket items like a camera or a computer. Offering to match whatever your child saves towards a long-term goal can be a motivating factor to older children and spurs them into attaining a goal.

Write down each goal, and the amount that must be saved weekly, or monthly to reach it. This will help your child learn the difference between short-term and long-term goals and how best to save or invest to achieve this.

Involve your children in your financial decisions regarding philanthropy and expose them to charitable giving early in their lives. Children can donate their unused toys, books and clothes and as they get older, can volunteer, giving of their time and talent.

These lessons teach them to understand and value those that are less fortunate. This will go a long way to develop a more responsible, caring society as the younger generation begins to have a sense of appreciation for some of the experiences and luxuries that they enjoy and take for granted.