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Age-appropriate money lessons for children

Talking openly and honestly with children about money removes the mystery and makes money management part of everyday life.

Experts say that children as young as three years old can grasp financial concepts like saving and spending, and that their money habits are formed by age seven. As the number-one influencer on their children’s financial behaviour, parents should take advantage of everyday teachable moments to help their children develop good habits.

Here are some age-related lessons to impart with your children:

Age 3 – 5: Teach your child to delay gratification

The ability to delay gratification is used as a predictor as to how successful a person will be later in life. Whether it is waiting in line for the swing or to use a toy, it is never too early to begin talking to children about waiting for something they really want. The ability to delay gratification can be easily demonstrated by agreeing on a short-term goal. As children do not have a fully developed concept of time, it may be more effective to use a timeline of a month or less. The Christmas advent calendar provides an excellent opportunity to teach the lesson of delayed gratification. Alternatively, allow your child to set her own saving goal for something that she really wants. Using a savings jar and a calendar to track savings will reinforce the concepts of time and money – the two most important factors when it comes to investing. Of course, the best way to teach young children something is to demonstrate it yourself, so feel free to share your own savings goals and successes with your children.

Age 6 – 10: Teach your child to make financial decisions

The object of this lesson is to help children to understand that money is finite and the choices are infinite. They can have anything, but they can’t have everything. Every purchase they make today is a withdrawal against something they might have had in the future. Rather than providing your child with endless options, begin the process by narrowing down their options. For instance, allow them to choose between three different types of sweets as opposed to them being completely overwhelmed by the choices the shop has to offer. Over and above doing the maths, it also teaches the child what it feels like to make decisions – and to live with the consequences. Avoid bailing your child out when they don’t have enough money to purchase something they want. Financial bail-outs are not indicative of real life and only serve to rob your child of what it feels like to be deprived of something they really want, which in turn should stimulate a desire to save.

Age 11 – 13: Teach your child the power of compound interest

Teaching children the magic of compound interest can be fun and memorable, and requires shifting the child’s focus from short-term to long-term goals. With a fuller appreciation for time, children at this age should be able to set longer-term goals for themselves. Using a R1 coin and 10c pieces is a fun way to show children how money can grow. Another effective method is to use a desk calendar and jelly beans to demonstrate the compound interest is interest that grows on itself, using one colour for the ‘principal’ money and another colour for the interest. Don’t be afraid to exaggerate the interest. It is the principle that you want them to grasp, not the exact maths. The excitement of watching their pile of jelly beans growing exponentially on a daily basis should lead to more questions and more opportunities to discuss how interest works. An important lesson that should not be lost in the process is how compound interest can work against you.

Age 14 – 18: Teach your child to manage money

At this age, most teenagers are earning enough pocket money to warrant a bank account of their own. Online banking is the perfect way to allow teenagers to track and manage their spending, while at the same time reinforcing the first principle of financial management: you can’t manage what you can’t measure. The need for more independence during these teenage years presents boundless opportunities to teach money management on a smaller scale. Seemingly simple activities such as grocery shopping or going out for a family dinner provide perfect opportunities to discuss the household budget, making choices and sacrifices, the reasons for keeping till slips and how to track expenditure. There’s no reason why, as parents, we should not go through our bank statements with our teenage children to develop an appreciation for the costs of living, while at the same time using the opportunity to teach them how to read a bank statement.

Age 18+: Teach your child the value of an honest day’s work

Until you have traded a day of your life for a pay cheque you will never fully appreciate the value of money. Whether in the form of a holiday waitering job, baby-sitting, tutoring, coaching or pet-sitting, the lessons to be learned from doing an honest day’s work are as invaluable as they are endless. Besides for learning the need for punctuality, commitment and dependability, working gives one a fuller appreciation for money that is traded for one’s time – which in turn will hopefully encourage your child to start contemplating the benefits of investing and generating passive income.

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Craig Torr

Crue Invest (Pty) Ltd


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