Getting children to mind their money can be more like teaching them to wrestle an octopus into an onion bag than riding a bike – it’s almost impossible, endlessly frustrating and sometimes seemingly pointless.
But despite the challenges it poses, it’s very important because learning how to manage money in a way that is measured without being mean is a lesson that might endure if done right
The first question is when to start the lessons in lolly?
On the one hand, parents can be forgiven for wanting to protect their children from the crass and cold world of commerce for as long as possible.
They will, after all, spend enough time worrying about money and where it’s coming from without having to start stressing before they go into senior infants.
But on the other hand, the longer we shield our little ones from the financial realities of the world, the harder it will be for them to develop an essential life skill.
In fact learning to manage money, is at least four life skills bundled into one. It teaches children prudence, responsibility, delayed gratification and self-discipline.
While there is no definitive starting age – all children are different – the commonly accepted wisdom is that young ones are ready for some money lessons from the age of four when counting is central to their lives.
The key thing is easy does it though.
You are not looking to make you child a Nobel Prize winning economist or burden them with your own woes. You just want to teach basic numeracy and how to make decisions as to how and when they should spend whatever money they have.
Choosing the right piggy bank
Piggy banks are an excellent idea when introducing the notion of money but do make sure to pick one that is transparent so your child can watch the money they put into it grow.
It is also important to teach them the concept of the future them. This can be tricky as children tend to live in the moment but a fun way of locking in the concept of saving is a chart broken into small denominations which they can colour as the coins build up to set amount.
This teaches them about saving, about counting, about bar charts and about colouring so what’s not to love about that?
Lessons at the supermarket
When shopping in supermarkets make them aware of labels and how to compare prices and choose the cheaper alternatives or the ones that are on promotion.
If they are a little bit older, it is no harm to show them how unit prices can paint a very different picture of the actual cost of a product than the shelf price that many companies are happy to shout about. Although in fairness, many adults could do with learning this lesson too.
One other very important lesson a child should learn as early as possible is the difference between window shopping and actual shopping.
Window-shopping vs Actual shopping
They need to learn that just because they walk past the Disney store on Dublin’s Grafton Street, does not mean they are going to walk through its doors and buy some eye-wateringly expensive cuddly toy every single time.
The way to explain this is to highlight the difference between buying days and looking days. And before they go anywhere near the shops they need to know that “today is a looking day”. Once they accept that it makes temptation easier to resist.
How should I handle pocket money?
Another tool in a parent’s armoury is pocket money.
Not along ago, this writer took part in a debate on these pages about the merits of pocket money and for the sake of the argument sided against it, However, it can have value but it does need to be policed somewhat carefully.
It should be handed over once a child hits seven – how much depends on individual circumstances and parental values.
With pocket money a child can be taught the value of setting aside a percentage – even if it is only 10 per cent for future spending.
An important point to remember is that when children are given control over what they buy, they are going to sometimes (always?) make the wrong decisions.
That will leave them feeling sad and pleading for a do-over. This can be tricky because a parent might have seen the mistake coming and stopped themselves intervening – a little like David Attenborough filming a lion creeping up on an antelope in the wild.
The parent might also want to stop the child being sad. But making mistakes is part of life just as lions eating antelope is and children can learn a lot from making them.
Cash for chores?
An alternative to pocket money is a chore-based system.
By getting kids to do little jobs around the house for cash you can teach them some of the simple concepts of earning and income early on. And get them to do things like vacuum the livingroom. They will not, however, grasp the concept of wages and the financial significance of the money as it isn’t really understood until early adolescence, according to researchers.
That takes us to ages.
What to teach them about money from toddlers to teens
There are many thousands of books and websites the offer advice on how children can be taught the art of money.
We were impressed with the US-based Money as You Grow website from the Consumer Financial Protection Bureau (CFPB). which has an age- based guide to that many might find useful.
It suggests a few things parents can say to teach their children about the value of money.
For the youngest cohort aged between three and five it suggests the following:
- “Say: You need money to buy things, and you earn money by working.
- “Say: You may have to wait and save up money before you can buy something you want.
- “Say: For big events – and for everyday activities – you need to think ahead about what you will need
- “Say: Every time you spend money, you make a choice. There’s a difference between things you need and things you want.”
Any parent who can impart these four nuggets to children by the time they are five will have done very well indeed.
Children aged between six and 12 can learn they need to make spending choices and that it’s good to shop around and compare prices before buying (another skill many Irish adults could do well to learn, if our experience is anything to go by).
This age bracket should also be taught it can be costly and dangerous to share information online and that putting money in a savings account will protect it and pay interest.
Again, the US site has things parents might say to these young ones.
- “Say: You can earn money through an allowance or by doing jobs for the family or others.
- “Say: You can start a habit of putting money aside for things you want.
- “Say: You need to make choices about how to spend your money.
- “Say: Try shopping around and comparing prices and features before you buy.
- “Say: Taking out a loan means you pay back what you borrow, plus more – because of charges called interest.
- “Say: You need to keep important personal information private.
From 14 to 18, lessons can include the importance of looking at cost when choosing colleges, the need to avoid using credit cards to buy things which otherwise would be unaffordable, the nature of tax and saving for retirement.
Although, we have to be honest, teaching a 16-year-old about the value of pensions or the difference between the Universal Social Charge and the top rate of tax does seem like a stretch to us.
Home Economics
Speaking of teaching and teens, another thing that might be encouraged is choosing Home Economics as a Leaving Cert subject.
While certain core subjects are mandatory right through the curriculum and others are mandatory until the Junior Cert, the Department of Education has no policy on the one subject which would do most to improve our young people’s levels of financial literacy.
One of the questions on this year’s higher level Home Economics paper went like this
In relation to household budgeting, differentiate between essential expenditure and discretionary expenditure. Give one example of each type of expenditure.
How would you get on with that?
Making money visibile in a contactless world
Another modern day reality is the invisibility of cash. Contactless payments were introduced in Ireland in 2012 with Apple and Google Pay following a few years later.
The net effect means cash is increasingly invisible. By making it more visible and taking children to cash machines and using notes and coins more frequently, a useful visual lesson can be shared.
It is also worth remembering that whilst learning about money is essential, learning about money anxieties is not. How conversations are framed is key in this regard.
Saying “We don’t have enough money” or “We can’t afford that” can lead to anxiety about money, and a lack of control the family’s financial situation. By contrast saying “That is not good value for money” or “I can think of a better way to spend my money” imparts a sense of control and priorities.
And finally, it is of value to teach children what added costs mean. If you buy a bike you will also need to spend money on a helmet and a lock and lights and more.
And if you are going to see a film, then it is no harm to tell your children how much the tickets cost but also how much you are spending on snacks and drinks.
But you don’t want to be a bore about it. Your children already have plenty of reasons to think you are boring and you really don’t want to give them another one.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter by Joanne Hunt on your rights if your holiday flight goes wrong you can read it here.
