Money is not the be all and end all.....most of us appreciate that there is more to life and more to being a decent human. We might also recognise that living a fulfilled life is not about having full bank accounts, but it sure does help to have sufficient money to make your own decisions and live the life you want!
If you are new here then I do encourage you to check out this page in order to find out what our purpose is and who we are trying to serve here. Also, be great to have you check out our podcast, Ireland's only dedicated Financial Planning & Money podcast for Ireland's younger generations.
As parents we are naturally wired to try and create as positive as possible futures for our children, that probably why we care so much, right!? As part of that for some parents it will come naturally to instill an element of financial awareness and sense into our kids, and to maybe ensure they are a bit better able to manage money than we are! This episode is going to explore just a few ways of doing that, some you may have considered and some not......so keep reading!
So, money & kids, where to start! As usual it's no harm to begin with the end in mind! If you have kids it's probably fair to say that you want to give them a decent respect for money, to have an ability to understand the value of it, how to manage/budget it and how to make informed decisions when it comes to it's disposal!? It's sort of like financial stabilisers for kids!!!
Kids & learning the value of money:
Informed Decisions was featured in Sunday Business Post in February this year in a 'Kids & Money' special feature by journalist Emma Kennedy. The over-riding finding of this article was that in order to enable kids to have respect for money they must have an appreciation for how it is earned!
How To Show My Kids How To Earn Money?
So how best to have your children understand what it is to 'earn' money? For younger kids (such as our own!) it is a little more challenging and some would say too early to practice, the idea of earning money however I disagree. At age 2-3 kids are absorbing everything around them, and therefore why not ensure that their first exposure to money management is that it is not an infinite resource, for most of us!
Have you ever over-heard a conversation in a shop where a small child is asking for a particular item, be it something small like a tin of peas (what child has ever asked for a tin of peas!) or more expensive such as an item of clothing? The conversation can often go like this:
Child: Can I have that?
Parent: Not today!
Child; But I want it!
Parent: Child, we are not buying that, now come along!
Child: But Why?
Now, I certainly don't profess to be an expert at parenting, not by a long shot, but is there an opportunity to tell the child that we do not want to spend the money on that item, that it is not in the budget? Might this enable the child to recognise from an early age that it is not just Mammy or Daddy saying no 'because'? While we might not all want to say no all the time when the opportunity merits it may be an approach to start introducing to develop this sense with our children of a young age.
While at a young age it could help if we explained why we go to work, why we make certain decisions and why do certain things. For instance, do we tell our children that we go to work because 'we have to' (which might be the case!) or because we 'enjoy it and are doing it to earn money so that we can go buy the clothes we wear, the car we drive, the trips we enjoy at the weekend and the ice-cream you are eating!
What About Older Kids & Earning Money?
For kids of maybe 4 years one could get a bit more creative with how they earn income! When we were growing up it was the norm to get a certain amount of pocket money each week (which we usually spent with gusto in the local shop on the way home from Sunday Mass most weeks!!).
Pocket money is grand but if it is given without being earned one would wonder what message that is sending to a child. If it is earned by doing chores or other then it would appear to develop the idea in a child's mind that money is earned and not just given.
Speaking of which we recently came across a really neat idea from a parent who marries the pocket money (earned income) with the amount of kilometres the kids walk or cycle! Imagine your kid would get rewarded with 10c per kilometre walked or biked!? If I was a child & that offer was on the table I'd be spending all my spare time hoofing it up and down the road like Forest Gump!!
What To Do With The Money?
As touched on in the initial paragraphs if we want our children to have an ability to respect and manage money effectively this realistically won't be achieved if all we do is show them how to earn it......we also should support them in learning how to manage it once they have it!
Quite a few folks are fans of the piggy-bank idea for younger children, it helps build the idea that their money is being put aside for a future use/purchase and not being spent all at once. Some would categorise the money as having 3 purposes, save, spend and give away.
This approach ultimately seems a fairly solid one insofar as it helps a child associate money as we associate it ourselves now; of your income there may be a good chunk of it you need to spend in order to pay your way, you may wish to save another chunk, and you may also wish to donate or give away another chunk. This final element of giving some away may seem a bit strange to some folk but there is no question that it is one of the 3 things which we can do with our money!
Any Other Options Apart From Piggy-Bank?
We could open a bank account for our children and make lodgements etc, nothing wrong with that but may be a bit of a chore when it comes to actually making lodgements to traditional bank accounts!
Here's where we came across a really novel idea.....you operate as your child's banker! There are a few ways in which to do this.....you could keep tabs via a simple excel sheet which you update or indeed a paper version kept somewhere safe!
The idea being that as your child earns or receives income they hand it over to you, they deposit it with you essentially. Rather than having to then go and actually lodge this money in a bank or Credit Union you can include it in your own cash flow, however you update their account details in the Excel spreadsheet or paper version accordingly.
The opposite is applied when they want to spend or give money away, it is easy to record. If they are purchasing an item be that in a store or online you can carry out the purchase with your own cash/card and update their 'account' to reflect the expenditure. Much easier than trying to smash open a piggy-bank, and much clearer for them to see how much they have spent of their total!
I have mocked up a simple version of this Excel sheet, by no means a work of Excel brilliance but if you would like a copy drop me an email (click here to email me directly), I'll happily email it to you as soon I spot your mail.
What I have also included in this 'account' is an element of interest. Now I wouldn't get too hung up on how you go about calculating this element of it but there's a lot to be said for introducing our children to the concept of earning income on our assets. Why not!?
In the Excel that I have mocked up I have suggested that you could pay interest at the rate of 10% per quarter on the average balance of their account over that 3 months. Now you could say why 10%, that will set crazy expectations for them and they'll be in for a real shock when they do eventually open their own bank accounts, but it does introduce the following concepts:
- Compound Interest
- Accumulating instead of spending is financially rewarding
- Staying 'invested' pays dividends (literally in this case!)
How you wish to appy interest, if at all, is obviously a personal choice, but as above I wouldn't be overly concerned about how one calculates it in this instance, it is the principal and conveying that to the child which is the important element of it!
So Are Kids Self Sufficient Now??
What I am suggested above is not to put kids to task about paying for everything, neither am I suggesting that they now need to shell-out to pay for their portion of the shopping bills or heating bills! The above 'bank account' system could be applied to pocket money and gifts they receive, which can then be related when they ask for something out of the ordinary or which is for their use only.
The above should have the effect of helping them understand where money comes from, how it is earned, how it accumulates or not is dependent entirely on the choices that we make with regards our spending!
Sum total of all of this? If completed consistently and transparently it should give your children a respect for money and appreciation that it is a resource to be utilised effectively.
Thanks for reading, don't forget to drop me a mail at firstname.lastname@example.org if you fancy a copy of that Excel.
You're a Legend.....
QFA | RPA | APA | Qualified Coach