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Kids and the value of money

Nicole Pedersen-McKinnon

Manners. Numbers. Road rules. Why it’s not OK to hit someone who is trying to take your toy truck with said truck. It seems there’s no end to the wisdom parents have to impart to their children.

But whatever you do, don’t stop before you get to money and how to manage it.

Skip that lesson and it could really cost you. Get it right, however, and maybe your kids could one day support you. At the very least, they’ll be able to afford to leave home before age 30.

Here’s what you need to teach your children to give them the best shot at financial security:

Values and ethics

In this context, the value of money and a work ethic.

If you’ve seen the episode, you’ll recall Homer Simpson’s devastation as he pulls from under a bed not the last peanut he was searching for – “overflowing with the oil and salt of its departed brothers” – but a $20 note. Until, that is, he remembers “money can be exchanged for goods and services”, so $20 can buy many peanuts.

It’s an important connection. But how on earth are our kids to make it when everything’s now electronic, so they never actually see money?

We flash the plastic and bag the goods without a tangible dollar being exchanged. And we pay the bills online when the apples of our eyes get off the computer long enough.

It’s vital children understand that a savings, debit or credit card represents money. It might not be physical but get into the habit of communicating that it means giving up money in return for whatever you buy – and therefore the ability to buy something else.

A great idea is also to talk openly, say at dinner, about the family’s finances - the income coming in and the money going out. The concept of money as finite is key to your child’s financial future. If you can get Angry Birds off the screen, jump online and pay some bills together, too.

And it’s difficult, I know, on dreary days but if you bitch and moan on a regular basis about having to go to work, your child is not likely to develop much enthusiasm for it.

Spend it and it’s gone

I write often about the difficulty of delaying gratification. And you need only watch a child to understand just how ingrained it is to get what we want when we want it.

Not only good things come to those who wait, better things do. The point is that if you save and plan then the ultimate reward can be far bigger than the smaller ones along the way.

For this, pocket money is a great teaching mechanism.

The Australian Institute of Family Studies says half of 10 and 11-year-olds who get pocket money are paid between $5 and $10 a week. Those who get more – and 24 per cent make $10 to $15 – are likely to do chores for it, which is, of course, a great way to develop a work ethic.

Take the opportunity to collaborate with your child on what to do with their money. Suggest 50 per cent for now and 50 per cent for later; in other words, designate half for spending and half for saving.

They can enjoy determining what it is they want to save for, how much it will cost and hence how long it will take to get it. Hopefully, this focus will help them ignore the immediate temptations along the way.

This is the time to introduce interest and investment returns. A snowball is your friend here as money that is earning money grows and grows the longer it is allowed to roll on.

Outlay less than you earn

If you get the above principle established at the outset, debt shouldn’t be a problem. But you, of course, also need to instil in your children an acute understanding that what is spent on credit now needs to be repaid later. And, importantly, this pre-existing financial commitment curtails future spending.

It might also give you a nice bit of leverage when next battling to get homework done to point out the potential payoff – a job that can be rewarding both personally and financially.

Nicole is also the editor of Smart Investor magazine. Follow her on Twitter @NicolePedMcK

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