As parents, we have the duty to teach our children to be responsible with money and help empower them to take control of their financial matters. This can be done by creating awareness, introducing ideas to spark their interest and providing them with accurate information. By teaching your children about money, you are helping them to discover the relationship between earning, spending and saving. It is never too early to get them started. At a young age, your children will learn to understand and appreciate the value of money and simultaneously, develop financial management skills that are useful once they enter adulthood. To provide an overview, parents could start by explaining to their young ones the history of money, what money is used for, earning them and so on.
Understanding money through learn and play
As money comes in the form of bills and coins, you can introduce them to your children by playing Monopoly together or simply by bringing them along for shopping to observe how people use money to make purchases. Be patient while teaching them the denominations and value of each bill and coin as it takes practice. It is also important to help your little ones understand that money exists in other forms too such as credit card, debit card and cheque. However, these are not free money and they have to "pay back" with real bills and coins that they have worked to earn.
Ways to earn money
Educate your kids that money has to be first earned. Explain to them that most adults get a job and they work hard to earn money known as income. You can then continue to explain what your job is and how you are paid (money details are not necessary).
Once they are able to understand the concept, it may interest and pique their curiosity to find out about how they too, can earn money now and in the future. For a start, you can suggest to your kids about doing specific chores or tasks around the house for a payment of some money. When your youngsters have small opportunities to "earn", encourage them to put aside a portion of their weekly allowance into a piggy bank. This enables them to save money and make wise spending choices later. It is also a perfect tool to help your kids pick up money management skills.
There are different schools of thought when it comes to receiving allowance and performing chores. Since it shows the connection between working and getting paid, some people believe it is appropriate to pay an allowance based on the completion of certain chores. Therefore, it is better than just handing out money every time your kids want something. Others may think that kids should be expected to help out with household chores, and paying them to do something they should automatically be doing sets a bad precedence. At the end of the day, it boils down to how parents convey the message to their children.
Managing money and choosing between needs and wants
Parents should inculcate saving habits in their kids from young, as well as educate them to spend only on the needful. Part of making good spending choices is the ability to differentiate between needs and wants. Since we usually have more wants than we can actually afford, we have to decide what we really want the most. Kids have to learn at an early age that money is limited and people cannot escape from making spending decisions.
Teach and discuss with your children how to determine between needs and wants by looking at different items in books or catalogues. While you are out grocery shopping, get your kids involved by pointing out to you the ‘need’ and ‘want’ items. Ask them to think over each item and give reasons to justify a purchase, if any. Many children, for example, fall in love with a particular toy and decide they have to get it. Over time, however, they may realise that the toy is not so important after all. By using this discretion, you teach your kids how to compare prices between products and they also learn how to choose a product with the most value-for-money. For instance, you can quote the following example:
"Pencil A is RM3 and pencil B is only RM2. Both look exactly the same. Which one do you think we should buy?"
Knowing that their own money is on the line, kids tend to choose the best and most loved item when they wish to buy something. Although they are only expected to make a small contribution towards the purchase, they can make up their mind pretty easily. But once they are aware that you put a lot of thought into each spending decision, they too will be more likely to do the same. You can always help them to evaluate their options, but (within reason) leave the decision-making to them.
If you have older children, they can participate in planning the weekly or monthly household expenses by listing down essentials such as housing, car, utilities and food. This way, they get to see firsthand how finances are handled and how much is left over for optional items such as clothing (i.e. wants). At the same time, you can emphasise the importance of savings and how it can help to "weed out" some of their wants.
Waiting to make a purchase is also an excellent way to avoid impulse buying and allows kids to determine what they really want and what they can do without. This works effectively for tweens, teens and grown-ups as well. Another fun way to impart financial education to your kids is through writing, which can be both helpful and motivational. For example, you can write down the balance of their weekly allowance on the calendar and draw a big colorful circle around the date when they have enough money to buy something they fancy, say, a board game.
As parents, you should resist the temptation to step in and help your youngsters pay for the last few dollars. This will not only set you up for a lifetime of bailouts, but it also diminishes your children’ efforts and any feelings of accomplishment that they may have for reaching a goal on their own.
Ms Tracy Teng Mun Yee is an accountant by profession. She has passed her ACCA qualification and gained her ACCA fellowship during her 8 years of practical experienced working with multinational organizations.