Whatever our personal relationship with money may be, as parents we no doubt all desire for our children to have healthy relationships with money that will set them on the path to financial prosperity. Our education system provides little personal finance instruction and it remains our duty, as parents, to ensure that our children develop a good relationship with money. Here are some ways to aid their development.
Money is an enabler, not a goal
It is important to demonstrate to children that, while money can be an enabler for great good, it should not be an end goal. If your goal is to make as much money as possible, it is likely you will continually be chasing bigger, better, faster and smarter. The endless pursuit of money just for the sake of it can result in personal dissatisfaction, frustration and feelings of despair. To create a healthy respect for the value of money, encourage your children to develop a set of personal goals that they wish to achieve – taking flying lessons, buying a new surfboard, or learning the guitar. Talk to them about how money can be used to help them achieve those goals and feel fulfilled, how much money would be required, and how that goal can be channelled for the achievement of greater good.
Budgeting is a lifelong habit
Rather than a once-off exercise, help your children to make budgeting a normal part of everyday life. Like booking a dentist appointment only once our tooth is badly decayed, many of us foolishly put off doing our budgets until we find ourselves cash-strapped or in a financial crisis. Unfortunately, by doing so, we inadvertently teach our children that budgeting is a source of stress that should rather be avoided. Make a concerted effort to demonstrate the positive effects of proactive budgeting (telling your money where to go each month in advance) rather than allowing your children to witness the anxiety that flows from a neglected budget.
What you want now versus what you want most
We all know that it’s important for children to understand the difference between ‘wants’ and ‘needs’, but when children are young everything they desire might feel like a ‘need’. A powerful way of broaching this topic is to talk about what you want ‘now’ versus what you want ‘most’. Not only does this teach children to start thinking about the effects of delaying gratification, it gives them the power to make choices regarding their purchases by considering the consequences. You can either buy that toy now or we can save the money for a beach holiday in December. What would you prefer?
The concept of having enough
This generation of children are strong social and environmental activists and, through the power of social media, are acutely aware that many wealthy people (sports stars, film stars, owners of large corporations) regularly donate sizeable portions of their wealth to good causes. The reason ? It turns out that money can only make you happy to a point. While research shows that those earning higher incomes are generally happier, it also shows that there is a satiation point: a point at which having more income will no longer increase one’s happiness. It goes without saying that most of us want enough money to cover our basic needs, live a comfortable life, drive safe cars, pay for our children’s education and enjoy some overseas travel, but how much is enough? Talk to your children about what it means to have enough, what they consider financial freedom to look like, and what a comfortable life means to them.
Walking the talk
All these conversations will have little effect if we, as parents, don’t ‘walk the talk’. Our attitude to money will help shape that of our children so we need to check ourselves when talking about money and make sure we demonstrate healthy financial habits to our kids.
Financial literacy in a digital world
As we head towards an increasingly cashless society, teaching financial literacy takes on a whole new meaning – especially for parents who are less tech-savvy. We need to teach our children to transact safely and responsibly in a digital world, which is something most of us didn’t have to do. Over and above basic concepts such as debt, compound interest, budgeting and saving, it is our responsibility to make sure our children can navigate online banking, shopping and share trading, while at the same time educating them about online scams and fraud.
As much as we try to encourage our children to make smart money decisions, it’s important that we allow our kids to feel in control of their financial decisions. While they are relatively young and the damage can be limited to the extent of their pocket money, let them know what it feels like to make purchasing decisions with their own money. Not only does this develop financial responsibility, it also helps them understand all that is involved in the decision-making process such as price comparisons, market research, cost-benefit analyses, peer pressure, their own emotions (how they feel about parting with their money), and freedom of choice.
Consequences of decision-making
Having said that, if you’re going to allow your children to make financial decisions, it’s just as important to let them live with the consequences of their decisions without being bailed out by mom and dad. For every action taken there is a corresponding consequence, and there’s no point shielding our children from this harsh reality. Learning financial responsibility starts with taking charge of your money as well as owning the consequences of your poor financial decisions – without blaming others for your circumstances. If your child spent all their pocket money on a new pair of sneakers and has no money left for this weekend’s music festival, that is a consequence of their decision-making that needs to be borne.
The innovation and often sheer genius of many small business owners and entrepreneurs during the Covid-19 pandemic and lockdown has been exciting to watch. While our education system largely seeks to turn-out ‘employable’ young adults, we need to include a healthy dose of entrepreneurship in our parenting plan. Talk to your children about what it means to work for someone as opposed to working for yourself, what characteristics are required to be a successful entrepreneur, and let them share their business ideas with you, no matter how crazy they may seem to you. Allow them to practice ‘imagining’ without fear of being ridiculed.
Saving for the future
Finding a balance between being financially comfortable in the present while also putting money away for your future needs is something which most adults sadly don’t get right. Making sacrifices in the present for satisfaction at some point in the future is not always easy, but saving is habit-forming especially if encouraged from a young age. Talk to your child about something they would like to save up for and then encourage them on their savings journey. Let them watch their money grow in their savings account through the effects of compound interest and enjoy the rewards that come with disciplined saving.