Money talks: teaching kids about financial literacy
When is the best time to start teaching kids about the value of money? Hannah Davison talks about sowing the seeds for financial literacy.
I don’t remember many conversations about money in childhood, but I do remember my mum sending me out to find the tree money grew on. This was a great move on her part because we lived on a farm and I was very determined! For many families, including ours, money was a taboo subject. I understood it could be the source of worry and negative reactions, so I didn’t ask and my parents didn’t tell. However, this approach left so many lessons to be learned later, and in early adulthood I got into debt that took years to recover from. I now wonder if my mistakes could have been avoided if I’d learned more about managing money when all that was at stake was dollars and cents.
FEELINGS AND MONEY
Learning about money can be the source of fun and play, but over time we may develop feelings toward it that are centred on fear, remorse and deprivation. Children’s attitudes toward money will be influenced by what they observe of their parents. They’ll learn most from behaviours we demonstrate, and it can be hard to pass on a positive attitude toward money if our own relationship with it is fraught.
So, before you talk to your kids about money, think about your own feelings toward it and consider the values you want to impart, such as delaying gratification, spending wisely, being generous, making thoughtful decisions, showing gratitude and contributing to your communities.
WHEN TO START
Research by UK-based Money Advice Service and the University of Cambridge found that our attitudes, behaviours and habits involving money are formed by the age of seven. Robert Gardner, the founder of financial education charity RedStart, and author of children’s picture book Save Your Acorns, thinks the ideal time to teach children about financial literacy is between the ages of four and six years old.
RAISING EAGER EARNERS & SAVVY SPENDERS
MAKING MONEY: To get our children started on their own financial journeys, we need to give them the opportunity to earn. I asked some friends what jobs their children do for pocket money. My aunt noted, “Some jobs have to be done for the joy of living with you.” Apart from paying for the privilege of my presence (LOL), it’s important children contribute to the household where they eat, live and sleep by doing things like making their bed and picking up their clothes, toys and dishes. When it comes to earning pocket money, some suggestions included feeding and taking care of pets, helping with laundry, putting out rubbish or recycling, getting the post, putting away groceries, helping with housework, or, my personal favourite, rubbing Mum’s back and feet.
A suggestion from Scott Pape, author of The Barefoot Investor for Families, was to choose three jobs and write these on a chart to tick off as the weeks go by. It’s a great way for their jobs to be visual and to help kids become accountable. He also suggests an appropriate amount of pocket money is the same dollar figure as the age of the child, eg a five-year-old can earn $5 pocket money per week.
SPEND, SAVE AND SHARE: Set your children up so their money system is simple, visible and tangible. Label three clear jars for spending, saving and sharing. Scott Pape recommends that when they get their weekly pocket money, a little should go into each jar. You’ll need to equip yourself with a good supply of $1 and $2 dollar coins.
Explain their spending jar is for things they want to buy or activities they want to do. Their savings jar is to go towards a bigger goal, and their sharing jar is to go towards something you can all do as a family or fundraising for a good cause. Talk over dinner about your child’s particular goals. Find pictures for each jar and create a visual chart. Help them to count out their money to see the progress that’s being made with their earnings. They will see their money accumulating in their jars and plotted on their charts. Part of the fun of saving is the anticipation of getting the object they desire. Delaying gratification can help them avoid debt in the future and make for wiser spending decisions. Give them the freedom to create their own goals and decide how they spend their money.
MAKE MISTAKES EARLY, AND SAVE: It might seem like your children are squandering their money, but it’s worth standing back and allowing them to be in control. Let them enjoy the freedom and responsibility they have, and also make a few mistakes. It’s better to learn those lessons early with dollars and cents. If we wait until adulthood, the mistakes we make run into hundreds and thousands and can take years to rectify. Be engaged with the choices they’re making by helping them research and compare their options. When they’ve experienced the consequences of their decisions, discuss how they feel about it and if they would do it differently next time.
HOW TO START
A modern-day issue we have is that most transactions happen in the ether. Purchases are done by card or online, so the tangible exchange of dollars and cents for goods and services is invisible. Cash magically appears from machines and waving a plastic rectangle allows you to walk off with a trolley-load of food. This makes it hard for children to understand that money is a limited resource which we have to give away in order to get something in return. When you’re teaching your children about money, try to make it a tangible exchange of resources. Get some cash out for a small trip to the supermarket, or play ‘shop’ with your children using Monopoly money. Much learning can be achieved through play or everyday family activities where the environment is light-hearted and fun, and conversations happen naturally.
NEEDS AND WANTS
The first step on the road to financial literacy is understanding the difference between needs and wants. The supermarket is an ideal forum. Compare two items of similar value where one is something you need, and one is something you want, for example, 3L of milk versus 2L of ice cream. Explain that you’ve only brought enough money today to buy the things you really need. Ask your children if they can point to the thing you need and explain what you need it for. You probably make a lot of purchasing decisions in your head as you’re walking through the shop, but if you verbalise these, your children can hear why you’re choosing one thing over another and identifying something as a need or a want. Let them see that you’re making considered decisions about spending. This will help them understand there’s value in money and items, and also help to develop their vocabulary.
It can be exasperating when your child demands things and you have to repeatedly say ‘No’. When this happens, embrace the opportunity to talk it through. When they ask for something, your first response should be, “How much is it?” Get them to read the price if they can. Make that value relevant by figuring out how many jobs they’d need to do to make enough pocket money to buy it themselves. If you’re saying ‘No’ this time, explain why, but that your decision could be different next time. After you say ‘No’, it’s common for the ‘But why?’ question to follow. I’ve had to catch myself from always replying, “Because we can’t afford it,” because it isn’t always necessarily true. Sometimes I don’t want to buy it because it’s probably full of sugar!
A better answer might be, “I’m saying no this time because we’ve only brought enough money to buy the things we need.” There may still be some fallout, but hang in there because ‘No’ is a word children need to learn to live with. If there’s something they really want, ask how they think they could earn the money to buy it.
TALKING ABOUT MONEY
When children want to know something, they’ll usually ask. It isn’t always at a convenient moment, but if the questions come, make time to talk. I sometimes get, “I wish you didn’t have to work and you could be with me all day.” I had assumed our children understood the connection between work and money, but I was wrong. Of course money isn’t the only reason we work, we also gain self-esteem and satisfaction from it. However, it’s important to make it clear that money is tied to work and effort. You can help your children understand this connection by asking, “How do you think we get money as a family? What do we need to do to get it? What do we use it for?”
If your own financial difficulties arise, talk with your children in an age-appropriate way about what’s going on. Avoiding talking about money troubles might create a sense that money is always reliably present, but discussing difficulties openly can help build resilience for later in life. Be confident and reassuring. Tell them you have a plan but you might need to make some different choices. Ask if they can think of anything that might help. Allowing kids to take an active role in family problem-solving is extremely empowering.
THE FRUIT OF YOUR LABOURS
Money handled well is there to be enjoyed. When children are empowered with some financial responsibility, we let them be our teachers too. Watch their joy when that thing they’ve been saving towards finally arrives. Remind your children to save, share, and also to spend – the spending part helps us to enjoy life. After all, what could be more fun and enjoyable than flying your own miniature drone down the hallway? At least until it gets stuck in your sister’s hair...
Hannah Davison is a Scottish-born, New Zealand-grown author, freelance writer, journalist and blogger. She can be found at home on the family farm in North Canterbury with her husband, two children and a range of animals. Read more at hannahedavison.com.
AS FEATURED IN ISSUE 47 OF OHbaby! MAGAZINE. CHECK OUT OTHER ARTICLES IN THIS ISSUE BELOW