Mary Holm: Saving - teach your children well

There's more than one way to skin a cat. The same applies to teaching children about money. Some people, indeed, say they learnt their best financial lessons from watching their parents do it all wrong!

This chapter, then, is not going to tell you what you should do, but rather to pass on ideas that have worked well for others. Choose and modify the suggestions that make sense for you.

Pocket money

Experts suggest you start giving pocket money when your child can start to appreciate the value of money, perhaps when he or she first goes to school. Give it weekly, on the same day each week, so the child can count on receiving it.

How much? That depends largely on what the money is expected to cover. Discuss with your child what he or she is going to spend the money on, and what seems a reasonable weekly amount for each type of expenditure. If the child makes a list of items, this can also help him or her to budget.

Include enough money for regular savings. More on that in a minute. Also include some "other" spending, to give the child some discretion. And don't expect the child to pay any school-related expenses. You want to be sure those bills are paid, so you should pay them yourself!

Children's needs and wants will change over time. Negotiate increases with them at the start of each year - which helps them learn negotiation skills.

Should a child be expected to do tasks for their pocket money? Some experts say "No". A child should be entitled to pocket money simply because they are a member of the family. Pocket money, they say, is a learning tool, not a privilege. That's not to say children shouldn't be expected to contribute to the running of the household. But they should probably do those chores as part of the family "team", not because they will get paid for them. It's a question of what principles and values you want to communicate.

Working for extra money

Over and above regular chores, if your child wants to sometimes do extra paid tasks for you to boost their income, that's great. Try to treat the child a bit like a valued employee. And don't forget the importance of positive feedback - even if the job isn't done to your usual standards.

Older children may also want to take on a part-time job. If they do, let them spend their pay as they want - even if you think they are frittering it or wasting it. It's better if they learn young about unwise spending.

Saving

Encourage your child to always be saving for a goal - something they really want, rather than something you would like them to have. A short-term goal is good, especially when they are young. There's nothing like success to encourage further saving.

Buy a young child a lovely bright piggy bank for savings, and every now and then go with them to deposit the money in a bank account. When they are older, perhaps make an agreement with them that a portion of their pocket money is transferred directly from your bank account to their savings account. Some parents boost the savings by contributing 50c or a dollar for every dollar the child saves.

You might want to put a chart on the child's bedroom wall, showing how their savings are growing.

Gifts within the family

Let children learn the joy of giving from a young age. Help each child to shop for - or make - small gifts for family members.

A clothes budget

If you give a pre-teen or teenager a budget from which to buy non-necessary clothes and shoes, they will learn how to set priorities, and what happens if they blow all their money on one item.

Bonus: You won't be under constant pressure to buy heaps of designer label items.

Debit and credit cards

Some parents are nervous about their teenagers using these cards irresponsibly. Clearly, you will have to set rules, and confiscate the cards for a while if the rules are broken. But surely it's better for them to make their mistakes while you are there to give them guidance.

Borrowing

Consider charging interest on small loans you make to your children, so they understand the concept.

Let them in on the action

Explain to them what you are doing when you check your bank statement (You do check it, don't you?). You might point out how the money you took out of an ATM or via Eftpos the other week has been deducted from your bank balance - so the child realises it's not free money. Similarly, you might sometimes show your child how an item you bought for them on a credit card has turned up on a statement and must soon be paid for.

Consider discussing with an older child the merits of paying off a credit card in full every month - so they get that message before they have their own card. Show them how you do research and shop around before making major purchases, and explain the advantage of shopping in sales - as well as the temptation to buy things you don't really want just because they are cheap.

When can children do what?

Some banks will open a savings account in a child's name from birth, although there's considerable parental involvement. Other banks will open an account at 12 or 13. For term deposits, the situation is similar, a survey of major banks shows.

Children can have a cheque account as young as 11, or a debit card as young as 10 - again with parental involvement - depending on the bank. And most allow teens to use online banking.

Some banks will give a credit card to a 15- or 16-year-old, as long as their parent is the main cardholder on the account and is responsible for all debts. At 18 - the age from which a contract can be enforced - a young person can get their own credit card account.

Most banks charge low or no fees on children's accounts. Check the interest rates, though. Sometimes they are lower than on some adult accounts, and your child may be better off using an account under your name despite the higher fees.

Special features for children include free money boxes, passbooks to keep track of savings, and websites that include games for children. And, for older offspring, several banks have specific products for tertiary students or those taking their first job.

Offerings - and the ages to which they apply - vary widely. You may want to check out not only what your own bank will do for your children, but also what competitors will do.

What about shares? Children can own shares in their own name, but the contract must be signed by their parent or guardian and all instructions must come from that adult, say stockbrokers. At 18, the parental involvement can end.

BE FAIR

Children care greatly about being treated equally. Try to make sure each child gets the same pocket money, clothes allowance and so on at the same age.

What about inflation? In these times of low inflation, you may not think it's worth the bother of giving your second child more than your first child at the same age, because two years have passed. In any case, it's quite possible that prices haven't actually gone up on the products they buy. But if there's a 10-year gap, to be fair you should give the second child about 20 per cent more than the first. As a rough rule of thumb, allow 2 per cent per year.

ONLINE: STUFF FOR KIDS

The Retirement Commission's website is not just for us old fogies saving for our retirement. The Kids & Money section has lots of games for different age groups that teach children about money.

It also includes a useful section for parents, covering such topics as key financial concepts for children, how much pocket money you might give them, and what the games on the site will teach them.

* This is the final excerpt we are running from Mary Holm's book, Get Rich Slow: How to Grow Your Wealth the Safe and Savvy Way. Her popular question-and-answer column will resume next week.