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Teaching kids good money skills
By Tammy Barton

I was told this great story by a friend whose six year old son recently received a valuable lesson in money management. At the start of the term, Harrison’s mum had charged his tuck shop card with enough money that he would be able to buy his lunch on Fridays. They had created a budget together by talking about what Harrison would like to order and what was acceptable. On the other days he took a packed lunch. Fridays would come around and mum would ask “how was your special lunch today?” and Harrison would excitedly describe what he ordered. After a month or so, however, mum noticed that Harrison’s responses had become less enthusiastic so she asked him why. Sheepishly, he admitted that he had run his card down to zero by treating himself to a daily milk drink from the tuck shop. Fridays had gone from being his special lunch day to his no lunch day; something he kept secret from his mum and his teacher because he knew he’d broken the rules. Though mum’s heart was breaking, she explained to Harrison that she couldn’t recharge the card immediately because it wasn’t in the household budget. Harrison was back to packed lunches on Fridays for a few weeks and a valuable lesson was learned.

It’s important that we teach our children good money management lessons from a young age because it takes years of practice for skills to become habits. By exposing kids to money concepts early, they learn what works and what doesn’t. Certainly, kids will make mistakes like Harrison—others will lose or misplace their money, some will be defrauded of it in the playground, some kids will buy silly stuff with it—but these are all important lessons about the value of money.

Here are some tips for teaching children good money skills:Introduce the concept of budgeting

Michael, one of MyBudget's budgeting consultants, has this great advice: “Over the course of the year, it's likely that your kids will need some new clothes. If it's an expense that’s going to be incurred regardless, why not put the power into the kids’ hands and let them spend it? It's a great way to teach the kids to control their spending by giving them a limit on what they can buy. Do they want those expensive jeans or could they settle for something cheaper and grab a few tops as well? By putting it in their control it helps them learn about spending. It's also important to give them cash; if you just put the purchases on credit, it makes it harder for them to understand the concept of running out of money.”

With younger kids, start with smaller amounts of money and simple scenarios. For example, if you’re buying them a treat, such as an ice cream or lolly, rather than asking them what they want, give them a certain amount to spend and let them work out what they can afford. I remember some of my finest moments in childhood mathematics were at the local deli, working out what mixed lollies I could afford with a tiny handful of shrapnel.

The issue of pocket money

It’s important for children to gain a sense of control over their own money at some point, but the amount must be appropriate to the child’s age and situation and what you can afford. Involve your children in your family budgeting process so they can see where the household money goes and how they fit in. Too much pocket money can place a child at risk from robbery or bullying and lead to a distorted impression of money’s value. By starting with small amounts when a child is old enough to understand money concepts, you’ll have established good money habits by the time they become teenagers and are entrusted with greater money responsibilities. At what age to start providing pocket money isn’t set in stone. Some families start giving their kids small amounts of pocket money when they’re old enough to begin contributing to household chores. An important point: Make sure you set rules about how much money can be carried at school or at the shops.

Create good saving habits

You can teach the importance of saving in a variety of ways. Talk to your kids about minimising waste and finding ways to reduce household spending. Turn off lights, reduce water usage, close doors with the heating or cooling is on, don’t take one bite out of something and throw it away. Some parents make it mandatory for their kids to put a portion of their pocket money (or birthday/Christmas money etc) in the bank. Others offer their kids a saving incentive—for example, “for every dollar you put in the bank, we’ll match it, up to a maximum of $5 per week.” You can also teach your children the value of saving by not buying them everything they ask for. Highlight the difference between wants and needs by paying for the things they need, but expecting them to make a contribution towards the things they want. This lesson in delayed satisfaction (making sacrifices to save for something you want) is one of the foundations of great money skills.

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