By: Sharon Whitelocke
KINGSTON, Jamaica – Children and money have one thing in common: neither comes with instructions! As important as it is to bring up children with good morals, values and attitudes, it is equally important to teach them good financial management skills.
If you are like most parents, you work hard to provide for a “better” quality of life for your children and hopefully leave them in a sound financial position when you pass on. Wouldn’t you like to know that the investments you leave for them, will not be squandered foolishly but will be invested wisely and with any luck, passed on to the next generation who will do the same? If you do, you need to start early to teach your children these skills!
At a young age, children generally have no concept of money. They simply ask for what they want. So the first step is to create an awareness of money. Help them to grasp this concept by explaining that parents work to earn money; that when we buy food, clothes, toys and so on, we have to pay for them using money. Get your child a piggy bank and make it a habit of giving him a coin or two every day to save in it.
Step Two: It’s now time for him to understand that money is not freely available and infinite. We often have to make choices and tradeoffs between what we want to purchase and what we can afford to purchase. Taking your child to the supermarket is a good, practical way of demonstrating this point. Give him an amount that won’t cover everything he usually wants. Once he has exhausted the given amount, let him know that any other selections may require a tradeoff.
When your child is 5 to 10 years old, you may want to consider giving him an allowance to teach some money management skills! This will impart the three basic tenets to making sound financial decisions, which will serve him well in later years when financial propriety is critical.
These are:
• Setting Financial Goals
• Budgeting and Allocating Funds
• Discipline and Rewards
Setting Financial Goals
Teach your child how to set financial goals. The beginning of each year is usually a good time. Every few months you may want to sit with him again to reexamine the goals and occasionally engage him in a discussion about them. If your child is into drawing, have him draw a picture of his goals and paste it in his room. The aim here is to keep the child focused. Ensure that all goals are achievable in the near future.
Keep this a fun experience and encourage him to set goal which make him happy. In time let your child develop goals on his own and introduce the concept of long and short term targets. Help him choose a timeframe, and then let his mind explore the possibilities.
Budgeting and Allocating Funds
There are three options when it comes to allocating money: save it, spend it, or donate it. Teach your child the virtues and pitfalls of each.
Allow your child to develop the habit of setting aside at least 10% of his allowance for saving. For the portion that he decides to spend, let him make a budget before he starts to spend. Charity is always a good virtue to establish early on. At least once per year let him donate to some charitable event or cause.
Discipline and Rewards
You want to ensure that he understands the value of consistency. If he wants to achieve his goals within set timeframes, he must have an appreciation for the value of saving regularly.
Many schools (at least at the primary level) have a schools’ saving programme. If his school doesn’t, take him to open a savings account. Have him, lodge his money himself. Give him his passbook to keep in an agreed place to encourage him to be responsible and to have a sense of ownership.
Although the increase in the amount may not be much of a stimulant for a child, what he can buy with it might be more motivating. Let him enjoy buying the items he has saved for and the feeling of accomplishment in achieving this. Praise all efforts or even give a performance incentive that he will enjoy!
At 11 years of age and older, you may want to introduce him to the concept of investing. Take some of the funds he has accumulated or if you had purchased mutual funds or equities for him when he was younger, introduce him to these options. Create a spreadsheet of his holdings and have him update it once per month so he has a practical feel for this type of investment.
Children learn by example. So be a good example. It will be difficult for your child to appreciate the benefits of savings if you yourself are a reckless spender.
Finally, a word of caution: Don’t overdo the money talk, moderation is the key. You don’t want to make everything seem to be about money. The aim is to have him value saving, enjoy spending and appreciate giving!
Sharon Whitelocke BSc., M.S. M.I.S – Sharon is the Research & Business Development Manager at JN Fund Managers Limited. She may be contacted via email at [email protected]
