Children and Money

Many of us may recall learning about banking at school, with a weekly banking day to fill out deposit slips and hand over small piles of coins.  There was never an option to withdraw, only deposit.  This taught the enjoyment of saving and watching the figure on the right get bigger.

There are plenty of ways to demonstrate to children the enjoyment of saving.  From the early days of pocket money, encourage children to save 10% of all their money.  As they work in Saturday and holiday jobs, this rule should continue to set up a life-long habit of saving.

Have 3 pots of money where their pocket money or wages are divided into – spend now, save now and family tax.  The family tax pot is for a special family day out or treat where everyone can help contribute to the cost, or a family vote can decide on a charity who benefits from this pot, encouraging philanthropy and an awareness in the fiscal situation of others.

One of the greatest skills we can teach our children is managing their money.

Tips for helping your kids to become responsible with money:

1. Encourage your children to work for their pocket money.  When they are old enough, usually fourteen, encourage them to work for someone other than you. This gives them a taste of the real world
2. Encourage your children to save at least 10% of everything they earn
3. Teach your kids to budget and explain ‘pots of money’ This website is excellent
4. Make them responsible for the cost of their own education.  A part time job at university and contributions towards their fees give ownership
5. Sign your kids up for Kiwisaver when they start work and encourage them to contribute regularly.  This can be done via an employer or by depositing funds themselves
6. Lead by example – your  children learn by observing your habits with money.  If you put everything on a credit card then this is what you are teaching them.  If is important to talk to your children about money and the positive ways in which you manage your own affairs
7. Consider providing a weekly or monthly allowance for your teenagers
8. Discuss how interest works.  Maybe incentivise them by adding a few dollars to their account yourself every time they save a dollar
9. Explain the basic financial concepts of money your children.  If you are not sure what to explain, get someone you know and trust to support you, or get a book that explains it all and share the following with them:

• the power of compounding – investing $1 and earning 10% so it becomes $1.10 in year one, and then year two 10% is earned on the $1.10 to become $1.21, and so on, earning interest on interest
• the effect of inflation on money
• the time value of money
• how capital markets work
• buying appreciating assets and buying whilst values are low
• smart debt versus non smart debt (see Debt Management)