Diana Clement: Teach kids to save and reap rewards

The credit crunch brings opportunities.

One of them is to educate your children. Even primary school children may start following the news and it's a great chance to get them thinking about their money before they pass go and get a credit card.

One of the best ways to impart financial knowledge to kids is through "teachable moments" where everyday events are used to teach concepts, says Lyn Morris, financial education national director of the Enterprise New Zealand Trust.

Those moments may simply be the adults' worries and conversations that children pick up on and ask about. Or they could be an item on the TV news.

My own teachable moment came on Mother's Day when my daughter and I wandered into the viewing gallery above the SkyCity casino to see what was happening.

Realising that I didn't want to encourage the idea that gambling was fun or good in any way, we reflected on different ways of spending money and she got a mini lecture about the evils of gambling.

Real life teachable moments such as these are, if handled well, better than ones that are orchestrated in the classroom, says Morris. "Personal finance education is a partnership between schools, families and the community."

It's important to focus on impact, says Morris. Children and teenagers may not understand how sub-prime lending in the United States and obscure financial products called Collateralised Debt Obligations (CDOs) sent world economies into tailspins. But they are able to understand that it affects the security of Mum and Dad's jobs, their retirement plans, and the money the family has available to spend.

"You can't explain sub-prime mortgages to an 8-year-old," says Morris, who was previously an economics teacher. "What they need to know is that when there is less money around people have to watch their spending, and this is one of these times.

"Older kids may be amenable to the thinking that the availability of money and jobs is cyclical and that some are big cycles and some smaller cycles."

Children and teenagers make a lot of purchasing decisions for the family for things such as clothes, food and even family holidays and need to understand they are part of a group and don't come first, says Morris.

"A lot of them think spending is automatic and because they want something, they will get it. They need to consider what luxury items are." A good example, says Morris, is a mobile phone. They may be standard these days for teenagers, but an upgrade isn't a necessity. Another example is going to the movies, which by the time transport costs and food are taken into account, is significantly more expensive than renting a DVD.

The other concept the Enterprise New Zealand Trust imparts through its courses is that young people need to learn the most cost-effective way to spend.

In the movie example that might be teaming up with friends and watching a DVD. Or it might be going to the skate park as a group instead of an indoor ski slope, says Morris.

But kids need to make the decisions themselves. What's more, where values are involved, teachers can't preach, says Morris. It needs to come from the family in the first place and be reinforced in school. "The values have to be family values."

News reports about the credit crunch are also good teachable moments about investments and the fact that they go up and down in value.

To get across how the sharemarket works it's worth sitting down with the newspaper, find a stock that children are familiar with, such as Pumpkin Patch, and explain how each share represents a proportion of that company. Get your child to follow the share price over a week and at the end of that week review the price changes and see what questions your child may have.

But don't be surprised if they don't read the business section. Kids may not like the heavy text in the business section. But they can be encouraged to explore topics further online - or read articles in the College Herald.

There are plenty of stockmarket and investing games available online such as Wally OneShare Stock Tracker Game or, for older children, it's possible to play fantasy stockmarket investing on Stockguru.co.nz.

The more talking about money and investing and reflecting that is done in the home and at school the better. It's also important to involve the kids in decision-making about family money, says Morris.

Some parents may not be willing to share with their kids what they earn and the family budget. But they can talk about percentages, says Morris, and study how Mum and Dad are planning for their retirement.

The percentage approach is a good way to discuss the family budget, discussing the proportion of income spent on items such as food and household bills.

Children also respond to incentives. That could be setting up a competition to see who of two or more children take a shopping list and get the family's groceries for the cheapest.

Ian Grant, director of Parents' Inc, is a great believer in the teaching value of supermarket trips. He advocates taking children to the supermarket, giving them $10 and getting them to plan a meal for the night. "This really works. The dad who gave that idea to me has two girls at university in Otago who survive very well financially."

Another option is if children spend less of your money on a certain item after shopping around, you split the difference with them. An example of this might be buying a second-hand PlayStation game instead of a new one. Or, if they're saving and investing, by paying bonuses when they reach certain thresholds.

Having kids is a great way to kick some of your own worst financial habits. In my case I realised that the kids saw us eat out too often And as television's Money Man says, cooking at home is only limited by your imagination.

There are plenty of websites aimed at teaching children about personal finance. There are fewer aimed at parents that explain how to go about it. One site is MoneyInstructor.com - which has a free trial period. Its worksheets are useful for teaching children everything from writing a CV to working out what their needs and wants.

When Mum and Dad create or update a budget, the children can do their own - working out how they will spend their pocket money - should they receive it.

The site's best worksheets cover investing and can be customised. They're suitable for ages 7 upwards and cover subjects such as risk and return, return on investment and saving for retirement.

Teacher resources and handouts can also be useful for parents. These can be found on many websites such as Makingcents.com.au.

Grant recommends parents discuss financial proverbs with their children, which bring much financial wisdom.

They include gems of wisdom such as: "All hard work brings a profit, but mere talk leads only to poverty." And: "He who works his land will have abundant food, but he who chases fantasies lacks judgment."