Diana Clement: Hey kid... it's time to pay the rent

Kids who learn how to earn and save are more likely to grow up financially savvy. Photo / Getty Images

When Robyn Pearce's teenage grandson moved in two years ago, he got the financial shock of his life.

The boy who had always blown his pocket money on chips,soft drinks and "other rubbish" was told he had to pay rent and utilities from the $245 a week his parents were giving him while they were posted overseas.

Pearce, who runs Gettingagrip.com, felt her grandson needed to learn some financial realities. Two weeks into his stay, when asked to hand over his money, he replied: "Oh, I'll get it for you at the end of the week."

"No, love, it doesn't work like that," she told him. "I said: 'Obligations and rent are always paid first'."

Lo and behold, he'd spent the money, had only $36 left for two weeks of food and had to do hard labour in the garden to pay off his rent. He learned from that lesson to set up an automatic payment to cover his financial commitments first before fun money.

Children who learn financial lessons early often go on to be financially sorted adults by the time they Pass Go and get a student loan.

My own children have had a few hard lessons such as:

• Clothing doesn't grow on trees. From 8 and 10 respectively they've had to manage their $20-a-month clothing budget, which covers everything except uniforms. It works.

They have plenty of clothing and have learned the important lesson of differentiating between needs and wants and planning to ensure they don't run out of socks, casual shoes and undies.

• You won't always be saved. Much as it broke my heart the time my son left his wallet in the shoe rack at McDonald's Rotorua and lost $17 of his holiday spending money (and the beloved wallet), I didn't come to the rescue.

That was a lesson and a half in financial consequences as he watched his sister buy icecreams with money she'd looked after more carefully.

Losing money is a choice just like spending or saving, I explained.

• It takes time to earn money. Both of my children have had low-paid jobs pounding the streets with dogs and delivering the Property Press.

Investing the time to earn money is an eye-opener that is more useful for their long-term financial success than another hour's maths study or ballet practise.

• Once the money's gone it's gone. I don't lend and once the clothing budget reaches zero that's it until it builds up again. Sadly, the real world isn't like this. But for now they can't go into debt.

Financial learning doesn't just come from being hard. Family therapist and author Diane Levy recommends that instead of being punitive with children, parents engineer situations such as Pearce's exercise with her grandson, where the younger generation can make safe mistakes.

If their financial mistakes inconvenience them rather than punish, the children will learn how and when to delay gratification and the consequences of making mistakes.

When Levy's son had to pay a fine and insurance excess, his parents paid it but made him reimburse it from half of everything he earned until it was paid off.

KiwiSaver is a great learning tool for children on how little by little investments grow, and on the miracle of compound interest. Mine have to put 10 per cent of all their earnings into their KiwiSaver.

It has led to many conversations such as how the stock market works and we discuss how eventually their KiwiSaver savings will help boost their first home deposit.