The Benefits of Teaching Younger Kids About Money

The Benefits of Teaching Younger Kids About Money


The benefits of teaching your children about money can be both immediate and longer term. In the short term, you are encouraging them to develop good saving habits, which may last a lifetime. They will also learn how to make informed purchases, and perhaps even understand why they can't immediately get everything they want. In the long term, you are helping them avoid accumulating debt. By showing them the value of saving for the future, you can help your children plan for their financial security.

It’s never too early to start teaching you kids about money. Allow your children to help you determine what they are curious about and how best to teach them. You can use their questions to help develop lessons and conversations about money.

Explain to children that money is earned and is relative to the value that people give. An ideal time to begin teaching your children about the basics of money is when they first begin to notice it. To a young child, money comes from Mum and Dad's pockets or purse. Or the magic hole in the wall machine that spouts dollars after merely pushing a few buttons. It's understandable therefore, for kids to assume that money is readily available whenever it's needed.

When you are trying to explain why you can't meet their every demand, it’s better to avoid an overused response such as, "Money doesn't grow on trees" when a more constructive explanation may serve both of you better. Consider instead encouraging your child to look at the consequences of the purchase. If they have A they can’t have B, or how could they save or earn the money for themselves?

Even very young children can begin to understand the concept of earning money. Explain to your children that money is received in exchange for working or as a return on an investment, and that you can only spend what you earn. To help them understand what it's like to get paid on a schedule, begin paying an allowance. Then help them set goals for how they spend and save their allowance. It's important, however, to make sure that you stick to the payment schedule; otherwise the lesson may be lost.

You may like to consider the spend; share, save method, where everything your child earns or receives they divide into the three areas. In this way you are encouraging them to develop good money management habits and also the principles of charity and helping others. You may consider adding a little extra to their savings as a way of demonstrating interest.

When paying pocket money or an allowance it is important not to set up an entitlement mentality in your child. If they think that they have a right to receive money from you from an early age they may grow up with that mindset. By all means link the allowance to chores and jobs around the home but consider that some tasks which contribute to the household should be done automatically and not for paid reward. You may like to create a separate list of family or community activities which the entire household share, along with an agreed list of extras activities for which your child will receive reward.

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HSBC recession survey shows kids' thrifty instincts

Peter Bull, HSBC spokesperson, was reassured by these findings and suggested there was a danger in children picking up bad spending habits from their parents.


The research was conducted by YouGov and sponsored by the bank and Personal Finance Education Group (pfeg).

Findings showed that 80 per cent of children would save rather than get into debt and they saw money as something which assisted learning.
Wendy van den Hende, chief executive of pfeg, added: "This does not always last into adulthood, which is why we are working to improve financial education in schools to reinforce these instincts."

Comparison website uSwitch.com recently found that five million Brits spend ten per cent more than their income allows and 13 million break even at the end of the month, making no savings whatsoever.

The Global Approach to Financial Education

The Global Approach to Financial Education

Several countries, as follows, most of whom are members of the Organization for Economic Co-operation and Development (OECD), have developed and implemented national strategies on financial literacy.

Australia: In 2005, the government established the Financial Literacy Foundation (FLF) to implement a national literacy strategy. The creation of FLF was a key recommendation put forth a year earlier by the country's Consumer and Financial Literacy Task Force.

The FLF worked to integrate financial literacy into the educational system; to develop resources and support for teachers; and to provide financial literacy materials for the workplace.

In July of 2008, all of FLF's functions were transferred to the Australian Securities and Investments Commission, in order to consolidate the Australian government's financial literacy response under the Commission and to strengthen its role in safeguarding Australia's economic reputation and well-being.
Ireland: In 2007, the country's Financial Regulator embarked on a major study to assess the financial capability of Irish consumers. Largely based on the U.K. Financial Services Authority's survey, the face-to-face Irish survey took place between October 2007 and January 2008.
Although they were still in the early stages of their work, the regulator issued a Preliminary Report on Financial Capability in Ireland in June 2008. The final report has not yet been published. The broad objective of this work is to establish a baseline measure for financial capability, against which future research in this area can be compared.

Concurrently, under the supervision of their National Steering Group on Financial Education, Ireland has developed a Financial Competency Framework.

The Netherlands: Under the working title CentiQ, wijzer in geldzaken (Sensible with Money), around 40 partners from the financial sector, the government, information and consumer organizations and science, signed an agreement, in 2006, to work together on financial education. Together, the partners will carry out a strategic agenda that includes programs and projects aimed at improving the financial knowledge and skills of consumer and stimulating an active attitude, so that consumers can make conscious financial choices and become financially competent.

In 2007 and 2008, CentiQ carried out a number of studies and inventories in order to form a basis for the strategic agenda and the CentiQ Action Plan. All CentiQ programs are based on several strategic starting points, including:
•Household finances – These form the basis for all of the programs.

•Prevention is better than correction.

•The program is based on easily accessible and practical resources.

New Zealand: A Crown agency, the Retirement Commission, led the development of New Zealand's National Strategy for Financial Literacy, in 2008. The agency has also undertaken comprehensive "financial knowledge surveys", with the most recent being completed in 2009.
The New Zealand Retirement Commission also created Sorted (http://www.sorted.org.nz/), an independent government-funded organization dedicated to helping New Zealanders manage their personal finances, throughout their lives. In 2009 the Ministry of Education also took over all responsibilities for financial education in schools.

Singapore: The national financial education program, MoneySENSE, was launched in October 2003 to bring together industry and public sector initiatives in financial education, to create a long-term, sustainable program to enhance the basic financial literacy of Singaporeans.

The first National Financial Literacy Survey was conducted in March 2005. The survey found that, in general, Singaporeans have fairly healthy attitudes towards basic money management, financial planning and investment matters. Through its national MoneySENSE program, the Government of Singapore continues to support initiatives that enhance the basic financial literacy of consumers.

The United Kingdom: The Financial Services Authority adopted a National Strategy for Financial Capability in 2003. This strategy included a long-term, complex plan to target young people through new curricula, and savings accounts, to provide generic advice to the population at large, and to create new public programs for retirement savings.
Under the awareness portion of its National Strategy, the Authority has reached 8.4 million people, as of November 2009.

The United States: In 2006, the Financial Literacy and Education Commission created "Taking Ownership of the Future: The National Strategy for Financial Literacy". In addition to the 26 "calls to action" it published in its 2006 Strategy, the following year the Commission developed six new calls to action, where it wishes to concentrate its efforts.
In 2008, the President's Advisory Council on Financial Literacy was formed. In December 2009, the Departments of Treasury and Education outlined the first step in their efforts to promote financial capability among the nation's youth. Based on the findings of a new national financial capability survey, the National Financial Capability Challenge (http://www.challenge.treas.gov/) was created. This is a national award program, which aims to encourage financial education in schools across the country and recognize high-performing teachers, students and schools.

The OECD: In 2005, this 30-member group of countries published the first major international study on financial literacy.47 The study defined financial education, outlined the benefits of increased financial literacy and identified a life cycle of key decisions. In 2008, the OECD launched the International Gateway for Financial Education, which serves as the first global clearinghouse on financial education. It seeks to raise awareness; ensure a wide dissemination of research, best practices and guidelines; and build a worldwide network of government stakeholders on financial education.

Key Links

Australia

http://www.understandingmoney.gov.au/

Ireland

http://www.financialcapability.ie/

The Netherlands

http://www.wijzeringeldzaken.nl/

New Zealand

http://www.financialliteracy.org.nz/

Singapore*

http://www.moneysense.gov.sg/

The United Kingdom

http://www.fsa.gov.uk/financial_capability/

The United States

http://mymoney.gov/

The OECD

http://www.oecd.org/

From Leveraging Excellence: Charting a course of action to strengthen financial literacy in Canada

Even in the oil rich UAE - Schools need money lessons

There is certainly a lot to learn about money than just counting paper bills. But financial illiteracy still affects a lot of young and old people alike. The thing is, money management skills are not even taught in most schools.


According to the fifth annual Future of Retirement study of HSBC, 62 per cent of people in the UAE have never accessed any form of general financial education. Only 38 per cent feel they understand their short-term finances very well, while only about 19 per cent have a clear idea of what their long-term finances look like.

"Money is probably the most important thing in adult life we simply cannot live without it. So, it is beyond comprehension that we are not taught about money, budgeting, insurance and investment at school. How can a school be happy to let children leave education with an excellent knowledge of Latin and literature, but no idea of how to manage their money," notes Darren Ashley, managing director of Candour Consultancy.

That is why educating children about personal finance and managing money should start early. There are a lot of ways a child can learn about the basic concepts of finance, and video games are just one of them.

"[Educational videos] could certainly help, but these games have to be as attractive as the platform games and first-person shooters it will be competing with," says Ashley.
Gurnos Stonuary, business services director for the Nexus Group of Companies, agrees, saying that "anything that gets children to start thinking and learning about personal finance is a good idea."

"Video games and educational tools are very well able to support good financial planning and can play an important part when they are incorporated into an overall plan to teach children about money," Stonuary says.

However, he points out that a child's home remains the most important learning environment for shaping an individual's attitude and values towards money. He notes that it is in the home where children learn how adults spend, borrow, save, give and invest their money.

"In view of this, it can be hugely beneficial for children to be included in family discussions about money from an early age. This helps them start to understand how income is used and the financial goals the family has identified to work towards," Stonuary says.

Ashley suggests that parents assign children some jobs to do, to earn their pocket money. This will make them think twice before wasting what they've earned on unnecessary stuff.

"Also, get them involved in the family finances. Do not be shy about money. If they know what income the family has and how much goes on the mortgage, paying the utility bills, and why there are bills, they will learn that money is finite and the parents are not simply being unfair when they do not give them more. They will also learn about paying bills and start to understand mortgages," he adds.

It is also a good idea to start a savings plan to save towards the child's future education. It is necessary that the parents get the children involved, make them aware what has been contributed to the savings plan, what the value is, where the money is invested in and why the value is going up or down.

"Not only is this going to benefit the parents and child when it comes to having to pay for secondary or higher education, it will teach them about both saving and investing," Ashley points out.
Stonuary also recommends giving children some allowance or pocket money. The allowance should cover perceived necessities, with an extra amount to encourage them to learn to save and invest.

"Providing children with their own regular allowance at the beginning or the middle of the week encourages them to learn how to stretch their money and to be in a position to enjoy things at the coming weekend. Parents should not come to the rescue every time a child runs out of money or they will never learn money management," Stonuary advises.

Guidelines

"When children receive money, for example as a gift, parents should help them set guidelines on how it will be used. If it is a large gift for say a birthday, encourage children to invest some of the money. In addition, identifying money to be set aside for charity can influence a child to develop a concern for others," he says.

He also suggests creating a money plan with the child. The goal is to encourage the child to consider how much money has to be spent, how much can be saved and given to others in the form of gifts, charity donations. It should also encourage the child to think about what he wants to achieve with the money, what the financial goals are and how much he needs to spend to pay for what he wants and reach his goals.

"It is never too late to help children appreciate the value of money and with last year's unfortunate current economic downturn, even children who have enjoyed a high quality of life in the UAE can start to appreciate that financial plans can suddenly change," Stonuary says