Money and Children
What Should You Do?Today I thought it would be a good idea to look at what we should teach our children about money and the value they eventually place on it. One of the key issues I focus on when I have my say about money is how little is taught in school about managing money for life. However it is not any easy thing to teach in school and there are things parents can do to get their children off to a flying start.
Having been a teacher of secondary school students for over 20 years and having children aged 21, 18 and 15, I believe I am reasonably qualified to make some observations about the needs and challenges facing our youth as they enter the world of money.
As it stands, our society seems to assume that when we leave school, we will instinctively be able to manage money. The fact is though, that nothing could be further from the truth. We leave school with very little knowledge about managing our cash-flow and with a lot of pent-up desires and aspirations. For years we had been biding our time and finally we have 'arrived'. In short, as we enter the world of money, we are like potential lambs to the slaughter. I recently heard an analogy that describes what can happen and often does. It goes like this.
When Mr. Money meets Mr. Experience, Mr. Money gets the Experience and Mr. Experience gets the money.
As school leavers, the lack of experience our children have places them at a great risk of making mistakes they will remember and suffer from for a long time. I heard recently that many school leavers are already in debt by more than $15,000 for consumer goods before they reach the age of 20.
We obviously need to help our children find the least painful path to experience! My belief is that there are key ingredients that parents need to instill in their children so that they have the opportunity to avoid the mistakes made by their peers and often their parents before them.
I have heard many people say that they want their children to enjoy the things that they never had as a child. There is a major floor with this way of thinking though. Have you ever noticed that it doesn't matter how much stuff you get, you never reach a point where you can say you are satisfied?
This was made very clear to me about 10 years ago when we were driving a car we really had over-committed on and we were thinking it might be smart to try and 'cash-out' of it and go back to a cheaper car. We had previously owned an older model of the same car a few years before and at the time we had purchased that one we were very impressed with how smooth and quiet it was to drive compared with the car we had owned previously.
Driving past a used car yard one day, we saw a car like we had previously owned and we decided to stop and go for a test drive with the idea that we might be able to 'back-trade' and get some cash to reduce some debts. We had the newer model, so we figured it might be possible. Off we went for the test drive, but we had only gone a few blocks before we knew we just could not go back to the older model. Our newer car was so much nicer and the thought of going back to what had once seemed good to us, now seemed more like a form of torture. We were in a 'catch 22' situation. We could no longer be satisfied with something that had once been highly desirable to us. We didn't want to go back and yet we hated paying off the newer model. Not only that, the deal we were offered was so pathetic we couldn't go back there anyway even if we had liked the car. So many people are caught in this very trap. We had once been satisfied with the older car, but had become dissatisfied and were sucked-in by desires for 'bigger and better' and now were paying the price. It was obvious that 'things' do not satisfy.
I would say that as human beings it seems to be true that when you've got everything, you tend to appreciate nothing and when you've got nothing, you tend to appreciate almost anything!When I spent a week in Manila earlier in the year living amongst the people who scavenged their survival from the rubbish that was dumped each day, I saw real proof of this. Those people collected plastic, glass, steel, paper, cardboard... just about anything. They would sell this to dealers for a few peso's to barely survive. They certainly appreciated anything they could find. You name it and they saw value in it where others had turned their noses up at it.
So where does all this fit into an article about teaching kids about money? Well, I believe that if you give your kids lots of stuff, they will grow to have very little respect for what they have and it will actually be bad for their personal development. If they have everything as a child, they will have difficulty grasping the idea of going without as an adult and the damage will be done in the first few years out of school when they spend up big and dig a hole that is extremely difficult to get out of and that has them blaming the world for their problems.
As a 13 year old child growing up I longed for a motor-bike. We weren't that well off as a family and I knew it would be highly unlikely that my father would buy me one if I asked for it, but I let him know of my desire anyway. He responded by telling me that if I could get it to go, I could have the old Vespa scooter that was sitting under a tree near the shed (I lived on a farm and everything was parked near the shed). Now it wasn't what I wanted but I figured it was better than nothing. I knew it had not been started for quite some time because it had something wrong with it, but I asked the right questions, did the right experiments and eventually melted a bit of solder into the right place and got it going. It wasn't great, but it was mine and I had a lot of fun riding it even though it was about the most undesirable looking thing I could imagine at the time. (It wasn't even a real motor bike as far as my definition went. Being a scooter, it didn't even have a fuel tank to go between my knees for goodness sake and the wheels were so small they would stop touching the ground when I went riding along the trails the cows wore when they walked the same path every day. There I would be with the scooter's floor sitting high and dry and me going nowhere with the rear wheel spinning in mid air!)
Interestingly, I learnt a lot from owning that old thing and the experience I gained from trying to keep it in running order was invaluable. However, I can think of plenty of other boys both then and more recently who were given much more desirable and newer motorbikes to ride who just parked them and lost interest when something went wrong and they needed fixing. There wasn't enough pain involved in the process of ownership and so there was little value placed on it and today it is quite common for young boys to be given brand new motor bikes to ride around on. The sad thing is that I believe most of them will never learn a thing about how they work or how to look after them. The easier things are to posses, the less we appreciate them and the problem is that the more we have, the more we become numb to the value of the things around us and the less we appreciate the true value of what we have. "Easy come - easy go" they say!
How many times have you heard children say they are bored and have nothing to do, yet they have a toy box full of things, but not one of them appeals to them at the time. I actually watched my own children, when they were small, choose to play with empty toilet paper rolls rather than toys purchased from the toy shop. It's a bit sad that one of the biggest problems some parents have is trying to think up what to buy the kids for Birthdays and Christmas. Perhaps a family outing would be of more value than a material possession.
I think it is clear that perhaps we should stop sometimes and re-consider what our children's needs really are. I believe that less is sometimes more. I know that not having everything I ever wanted was one of the best lessons I ever had as a child, so I believe the first lesson is to arrange it so that your children work for the things they want rather than getting them too easily.
We sell a product through the Simply Budgets web-site called Pocket Pal that I believe is great for teaching kids about the value of money and working for the things they want. Rather than just giving your children pocket money, Pocket Pal requires that they negotiate jobs and the rate they will be paid for those jobs. They don't actually get paid in real money. They have to keep a ledger in their very own cheque book where they keep track of their pocket money balance (good for their math's skills as well). When they decide to make a purchase, they have to write a cheque and present it to you (the bank) so that you can then take them to make the purchase. If they want to purchase before they can afford something, there is a Credit Card and an interest calculator so they can work out and learn about the cost of 'having it now' and if they want, they can choose to purchase income protection insurance so that if they get sick and can't do their chores, they will still get their pocket money allowance added to their account balance even though they are laid up.
One of the best things is how this system teaches kids to stay in touch with the money coming and going in their account. They have to keep the records. I see many adults who do not keep in touch with their bank statements and the money going in and out. Every now and then they check how much is in their account and then they go shopping without stopping to consider the cheques they have written that have not been drawn yet and the things that are coming up. No wonder they get charged dishonour fees because their cheques bounce. Many people I speak to have no idea of how much they spend on things. I was shocked when I asked one family how much they allowed themselves for groceries each week. They replied that they had no shopping day, but instead they just bought food on the way home from work as they needed it. They had no idea how much they spent each week and the concept of having an amount set as their food allowance for the week was totally foreign to them. No doubt there was room for improvement!
The crucial things that children have to learn is that in real life, going without is one of the smartest things they will ever do and that if they really want something, they should not let anything stop them from achieving it. Sacrificing now and having later is an essential money principle. Of course these lessons begin with little achievements that gradually grow in size as their experience increases. The last thing kids need is to be given everything they want because the personal growth and the satisfaction of achieving something they set out to achieve has been taken away from them.
Having said all of the above, I still have not touched on the most important lesson of all to teach your children and that is the importance and the principles of investing. Many adults never invest because they never save. They spend all of their income (and more) each week. This probably happens because they were never shown any different and maybe were never taught financial boundaries and the concept of going without and saving and investing for later on.
In one of my Hints and Tips I mention the saying, "I will do today what others won't so I can do tomorrow what others can't". This is the story of investing. How do you teach this to children? A few months ago I would have said you should tell them about it. (Not so good I realised but I had nothing better to offer.) Recently though I heard about how some parents have used Pocket Pal to teach investing and I was just blown away by how clever this is. By the way, you don't need Pocket Pal to do this although it does make it easier. You could create the record keeping system yourself in a notepad of some sort.
This is how it's done. As your child earns pocket money and keeps records of their increasing pocket money balance, you offer to sell them assets from within the family home. For example, one parent I heard of sold the shower in the ensuite to an eight year old child for $50 pocket money and now pays the child 20 cents every time the shower is used by crediting the pocket money account. Another child bought his Dads workbench in the garage and Dad has to pay his son pocket money to use it. In this way the concept of working to purchase income producing assets that allow them to buy things they want without having to do any more chores is taught and re-enforced so well that by the time the child reaches the work force there is a good chance that he or she will look to purchase investments rather than 'stuff' right from the start.
It is much harder to get out of debt and change bad habits than it is to get it right, right from the start. Someone who never started smoking has no idea how hard it is to quit. A child who has already learnt to invest before entering the workforce is unlikely to ever have to go through the pain of trying to undo the damage caused by not knowing what to do with money when they get it.
Teach your children to value things by making them pay a price for what they get. (They won't love you more because you gave them everything, in fact I have seen that the opposite occurs. The more that is given the more they resent and the less they respect.) Teach them to invest at an early age so they understand the wisdom of working to purchase income producing assets that set them free rather than buying depreciating liabilities that shackle them for life.
If you are an Adult or over the age of 13 and need a money management system to set you up to be financially free you need Simply Budgets! Or you can get a great deal on both Simply Budgets and Pocket Pal to find out more click belowTo order Simply Budgets and Pocket Pal Click Here
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