A difficult choice between daily snacks or a movie at the weekend, a decision to save up for a concert ticket – these are the very first, yet highly important attempts of a child to plan his or her personal budget constituted by the pocket money. What and how should be taught by parents to their offsprings in order to ensure they are successful in money matters?
Tips for parents
1 Money does not grow on trees
The first concepts to be explained to a child as early as possible include the value and origin of money. In order for a child to comprehend the value of money and the parents’ financial capacity, it is necessary to explain how money is earned and what it takes to bring home a salary. In parallel the value of goods and services should be explained, thus strengthening the understanding of the relation between the efforts necessary to earn the money and the items it is spent on, as well as to explain the difference between “expensive” and “cheap” commodities.
2 Practical experience
In order to learn about money, a child needs to have practical experience. Each family may agree on a different amount of pocket money, which, of course, depends on the total family budget, yet even a lat a month is sufficient for a child to gain his or her first experience.
3 It’s never too early
When it comes to deciding at which age pocket money should be given, one should take into account a child’s maturity and ability to act independently. Quite often pocket money is introduced with the first day of school, but one may consider it even earlier. The sooner you introduce your child to money and the associated basic principles, the sooner your child will learn further steps in family finances.
! Talk about safekeeping of money. Make an agreement with your child on how the pocket money should be kept and explain that money should only be taken out of a wallet or bag when paying for a purchase, while in the public transport and on the streets one should always keep an eye on his or her belongings.
4 Regular “income”
To younger children pocket money should be smaller and “paydays” should be daily of twice a week, while in case of teenagers the monthly allowance can be issued in one or two instalments. In order for a child to learn about the basic principles of saving, his or her “income” should be regular and foreseeable; therefore you should not peg the pocket money to child’s performance or use it as a tool of punishment. Be consistent and stick to the rules you have agreed-upon with your child. You should remain firm if your child comes up with unjustified excuses to have additional pocket money, thus you will teach about the concept of scarcity of resources.
5 Independence
The moment pocket money is given to a child, it becomes his or her property. Let the young “moneybags” make his or her own decision on how to use it. Mistakes are inevitable, but it is the mistakes that teach a lot, including assuming of responsibility about one’s actions. Be generous with advice or opinion when asked, but avoid pushing your agenda.
6 Assuming responsibility
Children-related costs account for a large part of a family budget, yet in most cases children only see the tip of the iceberg, thus mistakenly presuming that family budget is spent solely on food. In order to avoid such situations, include your children not only in your regular shopping errands but also let them participate in planning of the family budget and witness paying for other items as well.
You should gradually increase the level of your child š responsibility for his or her daily expenses, for instance, let your child pay for the lunch at school, for extracurricular activities and own mobile phone bill. This will strengthen a child’s understanding of where the money goes and what are the numerous possibilities of spending it. With time you may entrust your children with assuming responsibility for common family expenses. Include your children in setting the family spending priorities. You should jointly agree on all the mandatory payments and your future plans.
! Before going to a shop, make a shopping list together with your child and appoint him or her as the officer in charge of sticking to the list.
! Let your child settle different types of payments under your supervision, for instance, for purchases in a shop and utility bills. This will serve as a valuable experience in dealing with money, while also teaching about the different types of expenses in the family budget.
7 Saving is the key to success
Your child is nagging you to buy something unplanned? Use this as an opportunity for a practical lecture on financial objectives and achievement of these objectives. Just like any other area, also successful financial planning is based on the set objectives. Not always there will be enough money to buy the needed or desired item at once; and this has to be understood by children. Therefore it is very important to teach your children about gradual achievement of objectives through saving.
! Include your children in the joint planning sessions in order to calculate how much money has to be set aside each month to go on a journey or buy a larger purchase. You should talk with your teenagers about long-term savings, for instance, to pay for their higher education.
! Help your children to save the money entrusted to them. For instance, instead of giving a child a five-lat note, give five one-lat coins, so that your child can set aside one of the coins in the piggy-bank. You may create a spreadsheet on your computer, which will act as your child’s “bank account”. Here you can account for all the savings and even apply a small profit margin that can be deposited to the actual piggy-bank by the end of each week or month.
8 Shopping skills
Teach your child the basic rules of sensible shopping, namely, comparison of different offers, the best timing, deciding between two alternatives (sweets or cinema). You should also explain your child about the marketing tools that are being used by traders to lure in consumers.
9 Accounting and planning
Help your child to draft his or her personal budget in the form of a simple table, which includes accounting and planning of all the income and expenses. This will gradually let your child comprehend the long-term impact of his or her decisions.
10 Learning by doing
A survey conducted by Swedbank Institute of Private Finances revealed that money matters are still seldom discussed in Latvian families. Yet it is the family where a child first encounters money and learns about its concept. Discussions about money and financial planning should be a natural part of daily routines and activities. It is from parents that children get their attitude towards money and financial planning, which in future may prove to be either a facilitating or an inhibiting factor when it comes to their independent financial lives. Children exhibit both our good and bad qualities and both conscious and unconscious behaviour, and therefore parents should practice what they preach, thus becoming role models in money matters.
Just like the rest of knowledge also lessons about money and financial planning are learned gradually, step-by-step. Choose one subject, help your child to master it and then move to the next level. And always remember to praise your child for his or her small victories on the way towards craftsmanship in money matters!
