As loving parents, we teach our children the important life skills that we hope will give them a happy & productive life. Money Management is a skill that needs to be learned and it is our job to give them a good foundation on which to build their futures.
I have observed two very interesting realities interacting with several generations of families while coaching them about money management. One is that there does seem to be a personality type (or as we laughingly call it a money gene) that will give children a tendency to be good with money, or be like greased lightening, with money slipping quickly through their fingers. Often, I see one of each in a family, which totally baffles parents as they try to teach good financial skills. I don’t think this should be surprising as it is also common for one parent to have a good money management style, and the other not so much. Consistent messaging and sharing your financial successes and even your mistakes can help build children’s positive money habits. And even if you feel that the non-money gene child is not hearing you, eventually your coaching will have an impact. Some children are slower to learn than others.
The second reality is that what we teach them about money throughout their formative years, will have a huge influence on their financial decisions, and ultimately their security throughout their lives. Typically, if parents are good money managers, their children will learn by watching them. Take the time to explain that the parent’s work is what earns the family’s income. That this income allows them to have food, shelter, clothing and everything the family has, is an important lesson. Linking effort to reward is one of the most important lessons we can teach our children.
Small children often comment that if parents need more money, they should just go to the bank and the bank will give them more. They need to learn that this income is not unlimited and that none of the family members can have everything they want all the time, because you can’t spend money you don’t have. It must be earned and waiting for what we want is acceptable. Self discipline or self control (the most important indicator of a happy life according to one of the largest studies of human behaviour ever undertaken) applies directly to learning good money habits.
One of the best ways to teach children about the value of money is to give them certain ‘jobs’ to do at home, for which they ‘earn’ their allowance. If they don’t perform those tasks, they don’t get paid (our employers wouldn’t pay us if we didn’t do our work, would they?). Then when they receive their allowance, a certain percentage must go into savings. These savings can be put toward something they really want to purchase. This teaches them the direct link between their efforts, their self discipline to save, and the proud feeling of enjoying what they themselves have bought. The feeling of success will translate into many other areas of their lives.
Assuming you have set the groundwork, as children get into their teen years, give them a clothing budget and let them spend it how they like. If they blow their allowance on designer labels, they won’t have many different outfits to wear. The next season they will shop more carefully, and they will learn the value of making educated buying decisions.
Finally, as parents, we must be their role models. If we view shopping as an entertainment, buy all sorts of frivolous unnecessary stuff and never save, then we can’t expect our children to act any differently. If we accumulate debt repeatedly because we live beyond our means, what does this teach our kids? If we don’t have the money management skills to share with our children, then it is incumbent upon us to get the education we lack. There is plenty of online help, and your financial advisor is also an excellent source for the information you need to nurture your children to future financial success.