Talking Money to Young Children: 7 things to keep in mind

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OUR FIRST ATTEMPT to “talk money” to our son was a dismal failure.

We had come up with a list on which we had written approximately 100 tasks and activities and each of these had a certain number of points. We didn’t want the list to be too “work-oriented” so we had included multiple activities:

• Activities to get him outdoors – he got points for jumping on the trampoline or riding his bike
• Activities to “make him a good big brother” – he got points for reading to his sister for at least 15 minutes
• Activities to encourage altruism – he got points for doing something nice without being asked
• Activities to encourage him to do things he didn’t like – he got points for brushing his teeth and going to the shower without being asked
• Activities to encourage him to be creative – he got mega points for original creations
• Activities to encourage him to read – he got points for reading for at least 30 minutes a day
• Activities to encourage him to participate in household tasks – he got points for performing some simple household task

Once he had “earned” a certain number of points, he received a certain amount of money.

As many parents who have attempted to associate money with tasks or activities no doubt know, activities that fail to make it to the list soon become worthless. As soon as our son had mastered how things worked, the two most common questions became “is that on the list?” and “how many points was that again? We stopped using the list when his sister started hiding to avoid her brother’s attempts to read to her up to thrice a day!

Talking about money with young children can be a tricky affair. Young children have no real notion of money. Yet financial literacy is at the core of any attempt that strives to raise independent children.

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A recent study conducted at the University of Cambridge found that by the time they turn seven, children have already formed money habits. These habits are primarily formed by watching and learning from how their parents handle money matters (shop, save, borrow). This view is consistent with The money as you grow website which has a wealth of resources for age-appropriate money lessons.

The study cited above found that teaching young children abstract financial concepts was likely to be ineffective in shaping or changing their behaviours. Indeed, children have no money of their own and are completely dependent on their parents.

However, the researchers found that children modelled the basic approaches and skills used by parents and other significant adults and these were thus influential in instilling efficient money habits and practices.

In other words, using real-life situations to explain money matters to young children is the most effective way to financial literacy.

What Should You Keep in Mind When Teaching Your Child About Money?

1) Model the behaviour you would like your children to develop

If you want your children to learn about the importance of savings, let them see you save. Keep a savings jar where your children can see it and let them see you make regular deposits. Explain to your children why it is important to save and what savings can enable you to do.

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2) Pick the chores you pay for wisely

There’s much debate among parents about whether children should be paid to perform chores around the house. While it works for some parents, I believe that children should not be paid for performing chores, unless they take on chores you normally pay someone else to do (such as baby-sitting or lawn-mowing)

3) Talk to your child about your money choices

If you avoid buying certain products (for instance, if you avoid buying brand names), explain your reasons to your child. If you buy products in bulk, explain why your choice makes more economic sense.

4) Teach your child about the relationship between work and money

There’s more to financial literacy than savings. Developing your child’s entrepreneurial spirit is an effective way of teaching him/her about the relationship between work and money. Developing a “business outlook” is not just about enabling your child to make some money. It’s about teaching him/her important skills such as creativity, originality, persistence and reflection, which are necessary skills in the running of a business (and in life!). What is your child good at? How can he/she sell the things he/she makes? Can he/she participate in garage sales? Check out your local library or YouTube videos for inspiration.

5) Let your child handle a little money

Children do not always understand when you tell them you “don’t have the money” to buy something. They don’t necessarily understand the concept that, once the money is used, it’s gone for good.

Letting your child handle money is a good way to teach him/her that money is given in exchange for something. Giving them a little money also teaches them the importance of making choices. It teaches them that they can’t always have what they want.

6) Teach your child about setting goals

We don’t always have what we want, when we want it. Such is life. It is important for children to understand that although they might not be able to have what they want (for instance, a new video game), saving towards that goal can enable them to achieve it.

If you decide to give them pocket money, you can teach them about saving some of that money. I particularly like Beth Kobina’s saving idea for young children. Kobina suggests that parents should create three jars labelled “Savings”, “Spending” and “Sharing” and that any money your child receives should be divided equally among the jars. He/she can then spend the “Spending” money on small purchases, donate the “Sharing” money and keep the “Savings” money for more expensive items.

7) Teach your children about the true value of money

What’s your view of money? Are you constantly stressing about the things you don’t have or enjoying those you do?

It is important to teach your children that there is much pleasure to be found in simple and free things. Spend quality time together. Develop fun family cultures. Create things. Teach them to distinguish between needs and wants. Visit the local library for books. Visit thrift shops or search the Internet for deals.

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