Lesson 20: Raising a Richie Rich (or Teaching Kids about Money) Part 2
I don't think it's a secret, but in case you haven't realised just yet, I will spill the beans: children are expensive. From birth on, through toddler tantrums and teenage angst, into adulthood, we parents are constantly spending money on our children.
Don't get me wrong. I think it's important to feed them, clothe them, make sure they get the best education possible and keep a roof over their heads. What I don't think is important is raising children who believe it is their right to ask for something and have it appear.
Your very first lesson in this Saving Revolution was about your childhood relationship with money. I am sure you were astounded at just how powerful your early experiences were and at how much of an influence they have had on your life.
This week we are going to look at that relationship and how it affects your children now, and how it may affect them in the future. We will be working to start your children on to a solid and secure financial journey.
Jobs for Children
You and I have to work for the money we spend, we don't put out our hand and get given the things we need or want. It is important that children learn that they should work for the things they need and want too.
From a very early age, our kids have had to work to earn the money to pay for the things they want (Hannah's Barbie doll for example). She was four years old and was able to understand the work/pay/save equation because it was broken down to be age appropriate.
From when they can walk children can help out with chores. And I don't mean the chores related to being a part of a family and household. I mean work. From 18 months little ones can follow you around and dust low furniture. From 2 years old they can put their own dirty clothes in the hamper. From 3 years old they can help to sort laundry and fold dry laundry, they can even deliver it to the appropriate spot. At 4 years old children can set the table for dinner and wash up dishes. From 5 years old they can feed pets, take out garbage, make beds, sort recycling, help with peeling veggies, vacuum and just about any other chore. Of course all these things need to be done under supervision. That's what parents do - teach their children by example, under supervision. No parent wants to raise completely useless, dis-organized adults.
Every year young people move out of home into Uni dorms or share-houses with absolutely no idea of how to take care of themselves, either financially or practically.
Teaching children basic living skills is a huge part of being a parent. You are not too busy. You are not too tired. And yes, it may be faster to do it yourself, but you are not doing your children any favours. Teach them how to do these things, reward them with pocket money and raise young adults who know how to take care of themselves and their future families.
The Pocket Money Card Game
Decide on a set amount of pocket money for each child. It may be 50 cents per year of age or it may be 10 cents per chore or you may have your own method of determining the amount. For each child create two laminated cards. On one card list their household duties - the things that must be done each day/week for them to collect their pocket money. On the second sheet list chores that can be done to earn extra money.
As the daily/weekly chores are done, check them off. I had our three chore charts blu-tacked to the kitchen cupboards and each night after dinner I would check off the chores. This meant there was enough time before bed to get any undone chores done - or they wouldn't be checked off.
Any unchecked chores cost 50 cents. It didn’t take long for the kids to realise they were much better off just doing their chores and collecting their pay at the end of the week.
When they want extra money they can choose a chore or two (or more) off the extras list. Before they are paid, discuss with them just why the purchase is so important. Is it better than something they already have? Is it good value for money? Have they done their research and found the very best price?
Asking these questions stimulates thought processes and encourages an understanding of just what a purchase means. It instills in your child the need to ask the question "do I really need this?" and "why do I need or want this?"
As the kids have grown, we have talked to them about money, finances and work, breaking the conversations down into age appropriate and understandable chunks so they were a part of some (not all) of the household planning.
By talking to your children about money at a young age you are making financial matters a natural part of life. They will have learnt their financial lessons early, from your example.
Here are some lessons you can teach your children as they grow:
Under eleven: Patience. Children, especially young children, are not patient. When it comes to money patience is essential. If your child wants that new $120 bike don't just buy it for him. Consider getting him to work for it. Make up a list of jobs and their values and keep a record. Explain how by earning and saving$10 a week he will be able to buy that shiny new bike in just ten weeks. Mark it on the calendar. Take him to the bank and open a savings account for him, then have a weekly banking trip so he can deposit his earnings and get the balance updated.
At eleven: Teach values. This is a tricky age: hormones are raging, primary school is ending, high school is starting. So much is happening and eleven year olds are very demanding and suffer from the "I wants" almost continuously. So take a deep breath, it is perfectly normal. When your eleven year old is wanting something, take the opportunity to teach some values. Don’t just say "no". Instead explain why you don't want to buy it. Explain that you have limited money to spend, that your money is already allocated through your Spending Plan, and that if you do spend the money on that purchase then something else will have to go. Explain that they may already have something that does the same job or that can be adapted to do the same job, and that you'd much rather save the money for a long-term goal.
Twelve - thirteen years: Charity. This is a great age to demonstrate the gift of charity. Remember the first 10 in the 10-10-80 plan? It is give 10 percent. Earliteens are very aware of the distribution of wealth in their world, and are becoming very aware of it throughout the whole world. These years are the ideal time as a parent to demonstrate charity so that it becomes a habit they will carry through to their adult years. That means not only giving more to charity, but involving your children in the process. It may be volunteering once a month, or collecting for a charity. It may be donating unused or unwanted items to someone who could use them.
Fourteen years of age - Show them the value of compounding interest. Teachers dread Year 9, the year most kids turn 14. It is that difficult in-between year, not really children, not yet young adults. Use this turmoil to your advantage and show your 14 year old just how easy it is to retire rich with the power of compounding interest. For example if your 14 year old was to invest just $1,000 (a lot of money, especially for a 14 year old, but not so much it's unreasonable) at 8%, and deposit just $50 a month, then by the time he is 65 years old he will have a nice, tidy $577, 596! Not a bad return on just $1,000 with a $50 deposit each month.
Fifteen and sixteen years: Encourage and motivate. During these years it is important to re-enforce the value of living beneath one's means, of regular saving and of living with a working Spending Plan. You can reinforce these values by offering a bonus for saving. Perhaps your young person is saving for a car - you might like to offer to pay the first years registration and insurance as an incentive to encourage them to stick with their plan. Or you could offer to match every dollar they save, halving the time needed to save up the money they need.
Seventeen on: These are the years where you denounce debt. With a vengeance. Your young people will be targeted by credit card companies offering instant approval and by loan companies glamourizing debt. They'll be encouraged to head off to university and pay for it later, the start of life long debting if they're not careful. Explain to your young adult that debt is to be avoided at all costs. No matter how much they want something, going into debt to get it is not a wise move. Show them the effects of debt; find a credit card calculator, put in the max amount and work out how long it will take to pay it off at minimum payments, and just how much extra they will have paid. Stress to them that while it may take a little longer to get something if they save up, at least they own it. And it's paid for, no one can ever take it off them and they don't have to be afraid of the postman.
Lesson 20 Challenge: This week write in your financial notebook each day. The best time to do this is just before bedtime of an evening. It won't take long, just a couple of minutes. Record one thing you did that day toward reaching your financial goals.
Don't get me wrong. I think it's important to feed them, clothe them, make sure they get the best education possible and keep a roof over their heads. What I don't think is important is raising children who believe it is their right to ask for something and have it appear.
Your very first lesson in this Saving Revolution was about your childhood relationship with money. I am sure you were astounded at just how powerful your early experiences were and at how much of an influence they have had on your life.
This week we are going to look at that relationship and how it affects your children now, and how it may affect them in the future. We will be working to start your children on to a solid and secure financial journey.
Jobs for Children
You and I have to work for the money we spend, we don't put out our hand and get given the things we need or want. It is important that children learn that they should work for the things they need and want too.
From a very early age, our kids have had to work to earn the money to pay for the things they want (Hannah's Barbie doll for example). She was four years old and was able to understand the work/pay/save equation because it was broken down to be age appropriate.
From when they can walk children can help out with chores. And I don't mean the chores related to being a part of a family and household. I mean work. From 18 months little ones can follow you around and dust low furniture. From 2 years old they can put their own dirty clothes in the hamper. From 3 years old they can help to sort laundry and fold dry laundry, they can even deliver it to the appropriate spot. At 4 years old children can set the table for dinner and wash up dishes. From 5 years old they can feed pets, take out garbage, make beds, sort recycling, help with peeling veggies, vacuum and just about any other chore. Of course all these things need to be done under supervision. That's what parents do - teach their children by example, under supervision. No parent wants to raise completely useless, dis-organized adults.
Every year young people move out of home into Uni dorms or share-houses with absolutely no idea of how to take care of themselves, either financially or practically.
Teaching children basic living skills is a huge part of being a parent. You are not too busy. You are not too tired. And yes, it may be faster to do it yourself, but you are not doing your children any favours. Teach them how to do these things, reward them with pocket money and raise young adults who know how to take care of themselves and their future families.
The Pocket Money Card Game
Decide on a set amount of pocket money for each child. It may be 50 cents per year of age or it may be 10 cents per chore or you may have your own method of determining the amount. For each child create two laminated cards. On one card list their household duties - the things that must be done each day/week for them to collect their pocket money. On the second sheet list chores that can be done to earn extra money.
As the daily/weekly chores are done, check them off. I had our three chore charts blu-tacked to the kitchen cupboards and each night after dinner I would check off the chores. This meant there was enough time before bed to get any undone chores done - or they wouldn't be checked off.
Any unchecked chores cost 50 cents. It didn’t take long for the kids to realise they were much better off just doing their chores and collecting their pay at the end of the week.
When they want extra money they can choose a chore or two (or more) off the extras list. Before they are paid, discuss with them just why the purchase is so important. Is it better than something they already have? Is it good value for money? Have they done their research and found the very best price?
Asking these questions stimulates thought processes and encourages an understanding of just what a purchase means. It instills in your child the need to ask the question "do I really need this?" and "why do I need or want this?"
As the kids have grown, we have talked to them about money, finances and work, breaking the conversations down into age appropriate and understandable chunks so they were a part of some (not all) of the household planning.
By talking to your children about money at a young age you are making financial matters a natural part of life. They will have learnt their financial lessons early, from your example.
Here are some lessons you can teach your children as they grow:
Under eleven: Patience. Children, especially young children, are not patient. When it comes to money patience is essential. If your child wants that new $120 bike don't just buy it for him. Consider getting him to work for it. Make up a list of jobs and their values and keep a record. Explain how by earning and saving$10 a week he will be able to buy that shiny new bike in just ten weeks. Mark it on the calendar. Take him to the bank and open a savings account for him, then have a weekly banking trip so he can deposit his earnings and get the balance updated.
At eleven: Teach values. This is a tricky age: hormones are raging, primary school is ending, high school is starting. So much is happening and eleven year olds are very demanding and suffer from the "I wants" almost continuously. So take a deep breath, it is perfectly normal. When your eleven year old is wanting something, take the opportunity to teach some values. Don’t just say "no". Instead explain why you don't want to buy it. Explain that you have limited money to spend, that your money is already allocated through your Spending Plan, and that if you do spend the money on that purchase then something else will have to go. Explain that they may already have something that does the same job or that can be adapted to do the same job, and that you'd much rather save the money for a long-term goal.
Twelve - thirteen years: Charity. This is a great age to demonstrate the gift of charity. Remember the first 10 in the 10-10-80 plan? It is give 10 percent. Earliteens are very aware of the distribution of wealth in their world, and are becoming very aware of it throughout the whole world. These years are the ideal time as a parent to demonstrate charity so that it becomes a habit they will carry through to their adult years. That means not only giving more to charity, but involving your children in the process. It may be volunteering once a month, or collecting for a charity. It may be donating unused or unwanted items to someone who could use them.
Fourteen years of age - Show them the value of compounding interest. Teachers dread Year 9, the year most kids turn 14. It is that difficult in-between year, not really children, not yet young adults. Use this turmoil to your advantage and show your 14 year old just how easy it is to retire rich with the power of compounding interest. For example if your 14 year old was to invest just $1,000 (a lot of money, especially for a 14 year old, but not so much it's unreasonable) at 8%, and deposit just $50 a month, then by the time he is 65 years old he will have a nice, tidy $577, 596! Not a bad return on just $1,000 with a $50 deposit each month.
Fifteen and sixteen years: Encourage and motivate. During these years it is important to re-enforce the value of living beneath one's means, of regular saving and of living with a working Spending Plan. You can reinforce these values by offering a bonus for saving. Perhaps your young person is saving for a car - you might like to offer to pay the first years registration and insurance as an incentive to encourage them to stick with their plan. Or you could offer to match every dollar they save, halving the time needed to save up the money they need.
Seventeen on: These are the years where you denounce debt. With a vengeance. Your young people will be targeted by credit card companies offering instant approval and by loan companies glamourizing debt. They'll be encouraged to head off to university and pay for it later, the start of life long debting if they're not careful. Explain to your young adult that debt is to be avoided at all costs. No matter how much they want something, going into debt to get it is not a wise move. Show them the effects of debt; find a credit card calculator, put in the max amount and work out how long it will take to pay it off at minimum payments, and just how much extra they will have paid. Stress to them that while it may take a little longer to get something if they save up, at least they own it. And it's paid for, no one can ever take it off them and they don't have to be afraid of the postman.
Lesson 20 Challenge: This week write in your financial notebook each day. The best time to do this is just before bedtime of an evening. It won't take long, just a couple of minutes. Record one thing you did that day toward reaching your financial goals.