Being a parent to a little one is truly one of life’s greatest blessings. Watching them grow and discover the world for themselves is priceless.
At the same time though, there are certain invaluable life lessons that we need to teach them as soon as possible. One of those lessons? Financial awareness. I say it’s never too early to start teaching your children about money. My son, Alfie, is just two years old and, guess what? He’s a little investment banker in the making.
OK, that might be overstating it, but he does have a very keen interest in collecting coins. You see, my husband and I have got into the habit of rewarding little Alfie with coins whenever he helps us with little chores around the house – tidying up his room or helping us to clean, for example. He habitually slots these coins into his money box and, come the end of the month, he joins his dad on a trip to the bank where he empties out the coins in exchange for banknotes. Alfie can then choose and pay for his toy at the toy store.
The whole process is a great deal of fun for Alfie.
I am thrilled that at the age of two, he already understands that money (in bank notes and coins) can be saved up and exchanged to buy things. But while I’ve always known that I wanted to start my child early on the basics of finance, it was after reading an article in Forbes magazine that I truly saw its merits.
In the article, Stuart Ritter, a respected financial planner in the United States, maps out money lessons essential to children at the ages of five, 10 and 15 – key milestones in their financial education, he says.
By the age of five, for example, my son will already be clued up on financial lingo such as saving goals. That’s further divided into a) what he’d like to buy; b) when he’d like to buy it; and c) how much it would cost at the time. This, as well as understanding the working definitions of a bank, a cheque, bills and a trade-off, will form the foundation of his basic financial understanding.
Mr Ritter goes on to detail the money lessons to be learnt as your child reaches each age bracket.
Age 10 involves him learning about interest, loans, taxes and inflation, for example. As children grow, the terms and definitions become more detailed. And soon, they can start practicing what they’ve learnt with their own bank accounts.
Do you remember the day that you opened your first account? This will undoubtedly be an invigorating and memorable experience for your child. As with most areas of their lives, children learn their money habits from their parents, unknowingly imitating your behaviour as witnessed while they’re growing up.
In fact, the British government’s Money Advice Service published a study this year that found that the window in which children’s money habits are set spans up to the age of seven. “It’s very hard to reverse those habits later in life,” said Guy Shone, the research director of the service.
For this reason, take the opportunity to talk openly about money in front of your children.
Of course, there’s no need to discuss your bank balance or your detailed investment portfolio, but speaking about banking practices with them and investment possibilities is a great way to stimulate their curiosity.
Another huge bonus? Openly discussing financial matters removes the “taboo” label so often associated with money.
Also, unlike the other big-topic conversations that you will inevitably need to have with your child (drugs, internet use and personal safety, for example), discussing money can be fun, experimental and actually put into practise.
What better learning – and bonding – tool than setting up a lemonade stand with your 10-year-old and following their money journey, from start to finish? Not only will you be spending valuable time with your offspring, but also showing them that working hard and earning their own money can be exciting, fruitful and rewarding. Who knows? You may even have the world’s next big entrepreneur living right under your roof?
But possibly the most important financial basic to instil in your child as early as possible is that of saving.
Given the current state of the world’s economy, you can do your little one no greater favour than to get them into the habit of saving.
“It’s not about saving for the sake of saving. It’s about spending choices and figuring out if you should spend now or spend later. It’s about teaching priorities and trade-offs,” Mr Ritter says.
In the meantime, little Alfie has yet to make his first independent financial decision – but he is well on his way.
Knowing that my son will have a financial edge means that he has all the fundamentals in place to make sound decisions with his money when the time comes. Besides, along with understanding money comes responsibility, careful planning and setting achievable goals – all qualities I will be proud to see in my son one day.
Janelle Malone is a wealth commentator, writer and author. You can read her blog at www.womenmoneyandstyle.com