Finance for Kids

Studies show that the 10 years after leaving school are ‘make or break’ time in terms of finance for kids – in this time we either set ourselves up for the future or spiral into debt resulting from unchecked spending on credit cards and unwarranted purchases.

And this is made worse by marketing companies deliberately targeting our vulnerable youth, in the hopes that they haven’t learnt about controlling their spending yet and that they will just buy their products on the spur of the moment.

No one wants to see their children spiral into debt, but by teaching your kids how to manage their money responsibly, you help them set themselves up for life! And it’s never too late or too early to start teaching your children about money.

So here are some things you can do to teach finance for kids.

• Lead by example – it’s pretty hard to teach finance for kids when you’re struggling yourself. Get on top of your own finances [read the “Financial Goals” tab on the NavBar for more information] and use this success to show your children how it’s done.

  And then teach them about money and finance – how to budget, debt (good and bad), savings, investments, and assets. The skills you need as an adult to manage your finances are the skills you should be teaching your children too!

• Help them open a bank account for saving their money and teach them how to prioritise their spending – must have, should have, nice to have. Other than the necessities of life parents need to provide for their kids, make your children responsible for their own purchases so they learn the value of money and how to set savings goals.
• If your children are tweens or teens, no doubt they will be interested in mobile phones and cash cards. Use this as an opportunity to discuss the dangers of cash cards and credit cards in particular, explaining that debit cards and pre-paid mobile phone plans are a lot safer, as they won’t let you spend what you don’t have.

  And make sure they are made responsible for all expenditure on mobile phone plans and cash cards – it’s the only way they’ll learn the value of money, which is essence of finance for kids.

• If they show an interest in known ‘scams’ or dubious ventures like mobile ring tone subscription services, explain to them how they work and read the fine print with them.

  Explain to them that unfortunately there are many unscrupulous companies that target the naivety and enthusiasm of youth, and that many young people have fallen victim to these companies, resulting in large bills and increasing debt.

Pocket money as a learning tool

You can pay your kids pocket money (about $1 per grade at school - so a child in grade 3 will get $3 per week) in recognition for them doing their chores – naturally as children get older, they should be responsible for more chores to help with the running of the house.

If your budget is too tight to pay pocket money [this can add up if you have lots of kids!], assign weekly points for doing chores. When they have accumulated enough points, they can get a reward – like going to the beach, or choosing a favourite dinner. To make it fun, you can even have a spinning wheel of prizes!

This is a good method, as it still teaches the importance of value, but also teaches that money isn’t the only thing of value.

You can also pay your children extras for doing extra tasks like washing the car, but make sure that you are in control and set the value and timing of these tasks – otherwise they’ll be washing the car every day and demand $10 a pop!

To get the most out of pocket money as a learning tool for finance for kids, keep the following in mind:

• Don’t get too bogged down with the link between chores and pocket money – it’s important for children too realize that they can’t get something for nothing, but it’s also important for them to realize that they should take some responsibility in helping run the family household.
• Just make the pocket money a reward for helping mum and dad around the house – agree with your child which chores they should be doing and explain that the pocket money is in recognition of them doing these chores and anything else you reasonably ask them to do. Don’t assign a cost per chore, as this takes away from the importance of just doing things to help mum and dad.
• If your child is becoming lazy with their chores, remind them what the pocket money is for and that if they don’t keep up with their chores, there may be a cut in their pocket money. Never cut it all, and again, don’t assign a value to the chores they aren’t doing. And always discuss this with your children first.
• Never cut back on pocket money as punishment for something else [after all, your boss doesn’t cut your pay if you pick a fight with your brother!]. You could set up a system of fines for bad behaviour, but this is much better dealt with separate to pocket money.
• As well as giving children pocket money, help them plan what they are going to do with it – spend some, save some? Set financial goals with your kids.
• You can also teach them how debts work, by offering to buy them something they really want and then setting up a repayment plan from their pocket money – don’t worry about interest repayments though, they will learn that one soon enough.

Check out the tools in the ToolBOX under the section on “Goal Setting Forms for Kids” – you’ll find a budget sheet and saving thermometer to help your children set and achieve their finance for kids goals.

Also check out this great site teaching finance for kids. Do you have a pocket-money story or some advice that could help kids get financial? Write a page on it and help kids get ahead…