Why you need to talk to your kids about money
When you’re a parent, money is never far from your mind. Raising a family is expensive and it often seems that there is an endless list of things to budget for, buy or replace.
The struggle is real and doubtless many parents hope that their own children won’t be faced with similar monetary challenges. However teaching children some basic financial skills, that might empower them to become money savvy in the future, is often not on parents’ agendas. But the evidence suggests that it should be and that even very young children can benefit from learning about money.
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Research globally has indicated that financial worries are a major cause of stress and can lead to anxiety and depression, with a study earlier this year, conducted by Bank of Ireland, revealing that one in three Irish people worry about money.
Parents may think that their children are too young to become money-aware but by the age of three, most children can grasp basic financial concepts such as saving and spending although they won’t be able to understand more abstract ones such as debit and credit.
According to a report authored by behavioural experts at Cambridge University in the UK, money habits are set by the age of seven, and it is these core behaviours that they will take with them into adulthood, affecting their future financial decisions.
The report concluded that “since young children are dependent on parents and have few material goods or monetary resources that they control independently, it is the basic approaches and skills which are modelled, discussed and demonstrated by parents and other significant adults, that are likely to be influential ‘levers’, instilling efficient habits and practices.”
For mums and dads who are not confident about their own financial literacy, this will entail doing a self-audit on themselves first.
“If they are to take a look at their own proclivities, they could see some habits that they would rather not pass onto their children, for example buying food that eventually rots and is thrown out,” says financial adviser John Lowe, The Money Doctor.
In terms of getting children on the path to becoming money savvy, Lowe suggests introducing them to money as soon as they can count, and that the concept of money can be presented via aids like an abacus and Fisher-Price’s First Blocks.
According to Áine Carroll, Director of Communications and Policy at the Competition and Consumer Protective Division (CCCP), a simple place to start is to involve your children in some household budgeting decisions.
This could mean giving your children the chance to choose where to go on a family day out with a choice of two or three places, and giving them a total amount they have available to spend, while discussing the pros and cons of each choice with them. Teaching them the hows and whys of budgeting is also important and Carroll suggests having three special jars for money; one for spending, one for saving for a specific goal and one for the future.
“Every time your child receives money, – pocket money or birthday money for example – they can decide how much they would like to put into each jar,” she says. This process will allow your child to understand how to manage their money over time.
John Lowe also proposes playing games with money motifs, such as Monopoly or online, which can serve as valuable teaching tools, and allow you to correct children’s mistakes and guide them as you play together.
When your child is a little older, most financial experts agree that opening a savings account is another great way to help them learn about managing their money.
This allows them to keep track of their money via their savings book or by checking online and financial institutions often offer playful elements, such as a free Henri the Hippo moneybox for young savers who open an account with Ulster Bank.
Áine Carroll advises to keep it fun, and once children do have a savings account, to consider letting them withdraw from it from time to time, if there is something they really want to buy.
“A treat as a reward for saving will keep them motivated and help them see the value of money,” she says.
Some parents might worry that teaching children about money places too much emphasis on finance from an early age, but the goal should be to teach children the value and importance of money while also ensuring they understand that money isn’t everything in life.
Ultimately, it’s about having a balanced attitude to money, which John Lowe defines as being, “When you are in control of your finances, control of your budget and while some things may not be accessible – Ferrari cars etc – you are able to achieve your goals from the limited funds you earn.”
One of his biggest tips is that families communicate openly and regularly about money.
Although parents who are going through financial problems, however, may wish to shield their family from this, the financial advisor says it depends on the children’s ages. “Certainly in teenage years, they should be aware of how tough life can be and how to cope with that situation. There is always a solution and it’s important that children learn from this.”
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