Pushpa Wood: Teach children about money early

Dr Pushpa Wood

Being a parent can be one of the most rewarding jobs you can have. But it does present us with daily challenges, including decisions about what things to expose our children to. One of the key questions I am asked by parents is what should they teach their children about money, and at what age?

My answer is everything that you can realistically share with your child, without complicating matters, is helpful and it is never too early to start having "money talks". Talking about money is no different to talking about how to keep healthy, or how to keep safe when using the internet.

If your 6-year-old's notion of money is something that "mum and dad get from a machine", maybe it is time to sit back, reflect and ask yourself some questions. As a parent are you preparing your child for the complex world that lies ahead? Do they really know how hard their parents work to generate an income for the family and meet all their expenses? Do they even know what real money looks like?

Moving money from an abstract concept to something tangible that is earned and saved before it is spent is an important step for children to understand. Children are more intelligent than we adults often give them credit for. They are also more understanding and resilient - if there are tough financial situations to explain, what children appreciate most is honesty, consistency and facts.

So, if you don't have enough money to buy something your child has asked for, be honest and put the facts in front of them. Explain the difference between things the family needs and the things that they want.

Tell them that all the "need items" must be purchased first, and then you will see if there is enough money left in the budget to buy what they want. And if there isn't, tell them how you the item can be budgeted for.

So, what is the right age to start having these conversations? I would say as soon as they are able to understand. However, what your child needs to know at the age of 4 or 5 is very different to what they need to know at the age of 10, 15 or older.

Research by the Westpac Massey Fin-Ed Centre shows that most young people get their financial information from their parents so it is important that parents provide a good foundation for future financial wellbeing. Make it a "learning experience" from an early age.

The initial conversation with a 4 to 5-year-old does not have to be about money. Start with the concept of "delayed gratification". It is a powerful way of teaching children that there are benefits in waiting for things.

Children also need to be made aware that they will sometimes have to go without things they want. They need to understand that, as a parent, it is your moral, legal, social and ethical responsibility to look after their needs, but that you are not obliged to pay for all their wants. But explain that you are happy to work with them to help them save for the things they want.

Another common question is, how much should you tell your children. Should you tell them how much you earn, how much debt you have and what, if any, savings you have in the bank?

There are varied opinions on this. Some parents feel that they should be totally transparent with their children, while others feel that they don't need to know that level of detail. Either way, children should have a general idea about the household's income and expenditure.

If you want your children to learn about living within their means and saving for the things they want, then it is a good idea to involve them in setting the household budget. This is a great exercise that leads to money-related discussions, including how much money should be allocated to each item, setting priorities, identifying needs and wants and aiming for a small surplus in your budget if at all possible.

Children need to know from an early age that money is not an endless resource and there are times when you may not have enough money for the things they want to buy. It is a good idea to discuss options in such cases.

The main thing is to involve children in money discussions; give them some responsibility and an opportunity to manage money from an early age so they understand its value; and ensure they understand the difference between need and want.
* Dr Pushpa Wood is the director of the Westpac Massey Fin-Ed Centre, a financial education and research centre co-funded by Westpac and Massey University.

* Business and civic leaders, organisers, experts in their field and interest groups can contribute opinions. The views expressed here are the writer's opinion and not the newspaper's. Email: editor@hbtoday.co.nz