Parents play a critical role in shaping their kids' financial futures. Photo / Thinkstock
Parents play a critical role in shaping their kids' financial futures. Photo / Thinkstock
Children can learn financial skills by being involved in the process of budgeting
How much do your kids know about money? Experts say improving children's financial literacy is as easy as explaining what you are doing when you pay your bills and giving them a bit more control over their pocket money.
A Cambridge University study found that how we behave with our money as adults is decided by the time we are 7, when most children can recognise the value of money.
Most 7-year-olds were capable of planning ahead, delaying a decision until later and understanding that some choices were irreversible.
Financial website Sorted.co.nz blogger Tom Hartman said that means parents play a critical role in shaping their kids' financial futures.
"Try to give them a lot more responsibility," he said. "We often do things for them and buy things for them but the more we give them the responsibility - as long as it's age-appropriate - you'd be surprised at how much they can participate."
He said piggy banks were not a good idea. They just taught children that money should stay in one place, not be looked at, until it was spent. He recommended using jars. "My kids have four jars - for spending, saving, giving and growing."
The growing jar was for long-term ventures, a sort of entrepreneurial fund, he said. "My daughter makes cakes. She might pull money out of the growing jar to buy ingredients and sell cakes."
Teaching children to be generous with the "giving" jar showed them that money was a tool that could be used for a lot of different things, he said. Physical cash was better than eftpos cards and bank accounts. "They need to be familiar with money because in the digital world it's a lot less tangible - that's one reason adults tend to overspend."
Everyday shopping could be an opportunity for children to learn. "At the supermarket, say, 'If you help me save money, you can have the difference.' That helps them identify what's on sale and how much they are saving in the choices they make."
Financial adviser Bruce Cortesi runs a financial literacy programme for those aged 14-21. His research showed 55 per cent of Year 13 students (aged 17-18) had access to credit cards and in many cases the limit was being paid by their parents each month. "We've found a lot of misinformation about credit cards. [During the course] we give an artificial credit card and say it has a limit of $1000. Some say they're going to spend half and save half. Others say they will take it out and put it in the bank."
Parents could pass wise money habits down to children even if they were not particularly good with their finances, he said.
Cortesi recommended children be part of discussions about the household budget. "Say, 'This is what the budget is, this is the money coming into the household, the bills to pay.'
"Talking about money in and money out and what that equals, that's something that parents can do very effectively."
Teach children by practical example
Rebecca Melton and son Sebastian, 7.
Aucklander Rebecca Melton tries to give 7-year-old Sebastian responsibility for his money. She has noticed his ability to understand change over the years.
"It used to be that if you paid him 20c he was as excited about that silver coin as if you gave him a gold $1."
This year he moved from cash to money in a bank account. "It's now electronic not physical. He wouldn't have grasped that concept until now."
He will be given pocket money of about $1 a day - with bonuses and a clothing allowance.
"When we go out he'll say he wants something and we'll say, 'Yep, you can get that, have you got enough money?' If he says no, we say, 'Maybe next month'." Melton said she tried to communicate the idea of working towards things that he wanted.
