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Children and money: seven lessons you can share

Here’s how to help your kids develop good financial habits that will stand them in good stead for the years ahead.

As a parent of three children, I have found it fascinating to watch my children’s money personalities develop as they grow older. Spending some time playing Monopoly with them over the lockdown period has made me realise that although they’re all raised in the same family home and environment, children develop their own relationship with money.

You may have experienced it, the child that is so generous they give everything away; the ‘super spender’ that wants to spend his or her birthday money the same day they receive it or the ‘super saver’ child that doesn’t spend anything and has to be coaxed into buying something nice for themselves.

How can we give our children the best shot at having a good long term relationship with money? How can we help them be successful with money and develop good habits that will stand them in good stead for the years ahead?

Seven learnings you can share

Teach them about opportunity cost

This sounds complicated but it really isn’t. It’s about making a decision to forego something to gain something else. It’s a trade-off between one or more things that are important and a decision needs to be made about which one is more important. Help your child understand and consider choices. “If you want this lego set you can’t also have the scooter” … “Which one is more important to you right now?”

This can relate to many choices in a child’s life and it’s important for them to understand that they sadly can’t have it all and will have to make these decisions going forward.

Teach them about saving and delayed gratification

Simply teaching a child to wait for something is teaching them a very valuable life lesson. In today’s age, everything is about instant gratification. We are bombarded by marketers “Buy now pay later.” We can get about anything we desire instantaneously and on credit. Teaching a child to save for something and to wait for it will stand them in very good stead for the future. Patience is key and very often given a bit of time to reflect, they tend to change their mind and something else becomes a priority. After all, good things come to those who wait.

Teach them about the power of compounding

This is difficult to demonstrate to children but if you get this right early on it is so powerful. Einstein referred to the power of compounding as “the most powerful force in the universe”. That is a pretty powerful statement from the genius! Very simply compounding is the effect of growth on top of growth.

A good way to show them is to open a savings account and show them the effect of interest earnings on top of interest earnings. Teach them about “value” and that money doesn’t grow on trees.

A while back I noticed a R10 note sticking out of a pot plant on the windowsill in the kitchen and asked what this was all about. I was told that the children wanted to see if they could grow a money tree. Needless to say despite careful care and attention the money tree didn’t grow.

Have you ever been in the shop and your child has said that’s only R1 300 – that’s really cheap for that box of lego? Here’s your opportunity to point out that it is in fact actually very expensive and what the same amount of money could afford one for groceries or other necessities we need to exist.

Children won’t easily understand value unless they are taught by a parent to attach a value to something. It comes with experience and if children are taught to wait for something (delayed gratification) or to choose one thing over another (opportunity cost) they start learning what value is.

Teach them about charity

It’s true what they say, charity does begin at home. Share with your children how there are people in the world that are far less fortunate than themselves. Don’t let them grow up in a bubble. Gently remind them that they need to consider others who are not as fortunate as they are and that they, no matter how young they are, can assist others. It is a very valuable lesson for a child to learn that they can make a difference. Get children to come up with ideas of how they could help others in need.

Encourage Entrepreneurial spirit

Often children will say they want to earn money and generally this entails them doing chores around the house in exchange for a monetary reward. It takes a lot more work and creativity, but help your child to think about other ways that they can earn money. You could suggest a small business idea such as baking and selling biscuits to earn income. This encourages an entrepreneurial spirit and it teaches them simple business concepts from an early age.

Goods versus experiences

The novelty of a new item such as a toy wears off quickly. It stays ‘new’ for such a short time and then children tend to move on to the next thing that they want. It has been proven that the joy gained from an enjoyable experience shared with others is a memory that stays with us much longer than the fleeting joy brought about by a new gift.

Try and encourage your children to have more ‘experiences’. Lead by example spending money on a family outing such as going up Table Mountain, ice skating together or a trip to the theatre – enjoying the experiences together – instead of buying them the latest gadgets.

Lead by example

Lead by example. I realise is far easier said than done, but it’s important. How can a child be taught one thing only to see you doing something completely contrary to what you’ve said to them? Practise what you preach! Children are smart and pick up on everything that goes down in a household. Lead by showing them good money habits and respecting the value of money.

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