Spend! Spend! Spend! Oh hang on, where'd all my money go?
Being literate when dealing with money and finances isn’t something that comes naturally to everyone and as such should be actively taught. It’s actually a much trickier concept for children to grasp than you might expect, especially as they pass into adulthood in today’s age of digital currencies. If we want our children to be able to make sound judgements around budgeting, investing, saving, getting loans and how to manage debt, then we need to teach them these things explicitly.
Regardless of income or occupation, money in some form or other is something we all need and use all the time. There is a need beyond basic mathematics and sticking a $10 note into a piggy bank required for making informed decisions about ongoing financial security and being prepared for the future.
Making bad decisions can mean that your kids could end up in terrible debt, whilst good decisions can mean growing their financial wellbeing and securing their future. It’s important to not just understand things like the potential risks of investing in things such as cryptocurrency or real estate, but also the opportunities it can create. Being able to decide which risks are worth taking and which to avoid. All these factors are not inherent in children who must be taught and guided to develop their financial literacy.
Go get yourself an ice-cream
It’s never too young to start and you should begin teaching financial literacy to your child as early as possible. Even pre-schoolers can learn basic concepts like saving and spending (see my article on pocket money which complements this article well). Whilst children will learn the basic handling of actual cash (analogue money) in the form of notes and coins early on in their school life, the increasing reality is that kids are exposed to cash less and less frequently in their daily lives.
Cash is becoming increasingly less prevalent in society as we move deeper into digital and electronic means of transactions. If you think about all of the payments you make every day for things like groceries, petrol, cups of coffee and meals out, to bill payments, services you use, clubs and memberships, practically all of these are now online. Even a street performer approached me recently with an eftpos machine! Now it’s true that some professions like trades thrive on a cash industry but for the majority of people and occupations cash is becoming obsolete.
For most of us when we were children things were incredibly different. Cash was taken to a post office or bank and deposited with a little paper book. To get money you had to go back into the same place to withdraw it. Things could be paid for with a cheque book and credit cards were manually ‘clunk clicked’ in a hand held device then signed for, with the matching signature on the back of the card. ATMs were scarce and eftpos machines didn’t exist. From this aspect I feel we are in slightly better position having experience in the transition between the two formats.
Who cares?
So what does this mean for the coming generation and why should we care so much? Firstly, children are not so aware of the finite availability of money. Their first experiences of finances will likely be places like supermarkets where they watch mum or dad fill a trolley with food then get to the checkout and simply wave a phone or card across a screen to pay for it and then walk out. What lesson do you think they are learning from this experience? That anything we want can be gotten with a card or phone? They don’t see a transaction of cash exchanging hands, they don’t get to see you hand money and get less or none in return.
Neither do they see the quantity of money in your account and how this has decreased by the same amount of money just spent. Seeing cash as a ‘concrete’ payment helps them understand that money is not an endless supply. It’s not like you give your phone to the cashier and she gives you a smaller one in return as change!
Show and Tell
We can of course talk our children through the process but this abstract concept will take longer for them to understand if they haven’t experienced the use of cash. Initial exposure to ‘fake money’ in primary school is a good start but they have to see its real world application to be successful. We often tell our children we can’t afford certain things because we don’t have enough money, but we don’t physically show them this.
So where possible introduce children to cash as much as possible in those early years. Usually this will take the form of pocket money or payment for doing some chores. Having them save the money somewhere safe and then use it to buy things at a later time will let them see that they have a finite supply that gradually depletes as they spend, but also that not spending is a good way to grow your savings. This is such an important life skill, which if not fully understood can land children in deep trouble as they move into adolescence and adulthood.
I WANT IT NOW
Delayed gratification is a concept that needs to be learned if it isn’t something your child is able to deal with ordinarily. All too often children have access to ‘wants’ without waiting for them. This instant gratification and wanting things ‘NOW’ easily leads to tantrums and unpleasant behaviour and should be dealt with in those early toddler years to prevent 'Spoilt Brat Disease'. Giving in to those wants early on will only fortify their instant gratification behaviour.
If your child wants a particular toy or item and they don’t have enough money saved to pay for it, then they will have to wait before buying it. It might be hard for them initially and may well lead to tears and tantrums, but just like with all parenting, you need to play the ‘long game’. Remember, raising children is about giving them the tools, skills and knowledge to grow into well adjusted adults capable of taking whatever the future throws at them.
Sometimes we want to please our kids and will often buy it for them because we can. This is fine for some situations but not at the cost of helping them understand they can’t have everything they want, when they want. Single dads should work with the children’s mother to ensure (like most aspects of parenting) that these types of things are consistent across both households. Giving and buying kids more than the other parent should not be used to ‘win’ in the 'game' of who the better parent is.
Some good ways of helping further your child’s knowledge and experience of money can also be done by playing games, especially games like Monopoly or Game of Life. These games not only get them handling money physically, but also give them exposure to budgeting, investing and saving.
Keep using real life examples to explain finances, draw on your own personal experiences to support this and teach them the difference between needs and wants. It can seem odd to kids that you say you can’t afford to take them to the cinema or buy them a toy, only to then turn around and spend money on haircuts and petrol.
I owe how much???
Having been a teacher, I’ve had many conversations with parents over the years about financial trouble their kids have gotten into. Even in primary school there were cases of children running up huge bills on games downloaded on phones and iPads. Using real money to ‘buy’ digital currency in order to get access to new game features or items.
Quite often parents have set up accounts on electronic devices for their kids using their own accounts, which are attached to their credit cards. Kids have happily bought virtual game items without realising that real money is being used from parent credit cards. Suddenly you find a bill for several hundred dollars. Trust me, it happens a lot more than you think.
Thankfully there are a number of ways you can set up family accounts to protect yourself from this happening. Personally, I have apple ID accounts set up for the kids which I manage. Every time they want to buy or even download anything from the app store, it sends a request to my phone that I can either accept or decline. This way I can view what the purchase is for even if it is a free one so I can also ensure what they’re asking for is both age and financially appropriate.
Once your children are old enough to have mobile phones, you have to be mindful of the type of phone plan they have. It’s easy for them to rack up huge bills or blowing their ‘pay as you go’ credit without realising. There are a number of great family plans out there to use, which lets you monitor and allocate data allowances to each individual family member from a central account. Involving them in this process of monitoring their usage will help them to start managing their account and set them on a more informed path. Remember to look for those teachable moments, those life lessons that are invaluable to their development.
Do you take cash or card?
A good introduction to children using their own digital currency can take the form of a ‘loaded card’. Although they are used like debit cards, some of these cards have so many more features and as a parent give you control over the card usage. You can ‘load’ money onto the card for children to use and even set them up as a way to dish out pocket money for chores and other ways you let them earn money. With specific apps they can see and track all their finances. In Australia one such option is the ‘Spriggy’ card which offers such features, although there are many alternatives to choose from. You’ll also find similar products in other countries like ‘GoHenry’ in the UK or ‘Greenlight’ in the US.
As children grow, their own experiences with digital currency will involve having their own bank accounts and eventually a debit card. Debit cards are a great way for them to see that whilst they can still use a card to pay for items, that the money is still finite as it’s tied to the amount of money they actually own sitting in their bank account. Regularly viewing their balance online to remind them of how much they have and how much they are spending is important.
Hopefully, the tools and understanding you give them over the course of their childhood will prepare them for when they are old enough to get credit cards and loans. A solid background in managing and monitoring their own finances will help them to be able to budget when spending money they have borrowed and how to cover their repayments especially when interest rears its ugly head. Paying back more money than you borrowed in the form of interest is a bitter pill for anyone to swallow no matter how much experience you have acquired over the years.
So keep teaching and keep establishing good financial behaviours in your children. It’s never too young to start them on the right path and remember that it’s an ongoing life long process, not a quick one off chat around the dinner table. Play the long game.
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