The financial facts of life

By DIANA CLEMENT

We'd all love our children to grow up financially savvy, but too many Kiwi kids progress straight from piggy bank to plastic cards without passing go.

The average graduate starts working life with $20,000 debt and many simply don't understand that if they buy a car or stereo on tick that they'll have to repay the debt, says Enterprise New Zealand Trust marketing director Stephanie McGreevy.

It's never too young to start a financial education. Even toddlers relish the chance to hand over cash at the shop, and beam from ear to ear if you let them press the buttons at the ATM.

By primary school, children can learn to work towards their own financial goals. Teenagers can tackle budgeting and compound interest - subjects that leave many adults floundering.

You should harness your children's interest and teach the financial facts of life needed to navigate adulthood before your youngsters are pelted with credit cards, loan offers and "interest-free" hire-purchase deals.

How to do that:

* Start young. Toddlers love to play shopkeeper and count their play money. By two and a half, you can teach young children to recognise different coins and notes. And by three, my daughter knew the basics of work and money: "Daddy goes to work and earns mungey [sic] so we can buy coffee," she announced more than once in public.

If you don't think your little 'uns understand the complexities of asset allocation, then try simple money games, says parenting guru Diane Levy.

"Our children loved organising the coins by type and trading up their coinage," Levy says. "Even more exciting was The Advanced Game trading small notes for larger notes."

As your children mature you can start to explain the concepts of interest and borrowing.

* Buy them a piggy bank and open a savings account. The piggy bank is a timeless tool and see-through ones work best. Once your children realise that a full piggy bank represents money to spend or save, the meaning will sink in. If they need encouragement, find a picture of the item they want to buy and tape it on.

Unfortunately, most banks no longer have passbooks for kids. But you can set up regular direct credits and watch the numbers grow on the kids' statements.

* Lift the money taboo. Positive parenting experts are big on encouraging parents to talk to their kids and involve them in their lives. It's important that children know the benefits of good money management and the havoc that poor money management, or a shortage of money, can wreak on a family. So why don't they know how much you earn or what the grocery bill is?

By primary school age, kids can sense money problems in a household and they're less likely to be scared of a problem they understand. By intermediate school age, they can comprehend the concept of spending cuts. And, by secondary school, they're ready to understand salaries cut down into monthly amounts so talk to them about your monthly bills. You might even want to discuss what the family would do if you lost one income.

* Give regular pocket money and let children learn to budget. With a bit of encouragement, you can teach children to set aside a portion of pocket money for must-have items.


If you want to avoid nagging and whining completely, make that pocket money big enough to cover all their needs from clothing, to public transport, entertainment and food outside the house. They should, in time, learn to anticipate expenses.

* Split their pocket money in thirds for must-have purchases, short-term wants and long-term savings. When handing over the dosh to your children take a tip from waiters - who often give change in small denominations rather than one lump so you can set a portion aside for their tip. Likewise make sure your kids' pocket money is handed over in amounts that can be easily divided - such as three $1 coins or $5 notes.

Levy split daughter Deborah's pocket money in thirds for saving, spending and charity.

"When there was a worthy cause knocking on our door for a donation, Deborah would race to get involved. She would bale up the hapless collector and want details about how her contribution would be used and how much of it would be spent on administration," Levy says.

* Encourage goal setting. Get your kids to write down what they'd like to buy or do with their savings: a Bratz doll, Spiderman suit or even a weekend away horse riding. Explain the concept of saving and work out savings strategies together.

If they've got bad habits, capitalise on them. Every time, your teenager buys takeaways, they agree to put an additional $1 from their pocket money into the long-term savings plan. Many parents choose to match their children's savings dollar for dollar.

* Use everyday encounters to teach your kids. Don't sit your kids down for a lecture about the hypothetical XYZ company or bank. Show them your bank statement and explain how it works.

* Encourage money-earning ventures. Steve Biddulph, author of The Secrets of Happy Children, says household jobs help children develop self-worth. From the age of five, I had the opportunity to manage my own income by doing voluntary paid-for jobs around the house ranging from car and window cleaning to harvesting caterpillars from the grapevine.

But before parting with your money, make sure you check the job. This, say psychologists, helps children learn about the importance of doing quality work. As children get older, they can market themselves in the neighbourhood to clean cars, houses, walk dogs, and more.

You should also avoid paying children for compulsory jobs. As Levy says: "Beware of thinking that you can hold this system over your child's head like a Damocles' Sword. The parents who caution, 'Remember that you need to make your bed because you are saving for that fantastic Pokemon toy' is likely to get the retort: 'I don't want that stupid old thing anyhow'."

* Hold family financial forums where you discuss income, savings, shopping lists and cost cutting. Children are like sponges and if they see and hear you managing your money, they'll learn that dollars and cents don't grow on trees.

Older children can help draw up shopping lists, discuss the advantages of buying large packs over small ones and even doing the shopping on their own with a strict spending limit.

* Resist the urge to rescue. Set the rules for your kids, but resist the urge to rescue them. It's better they screw up young and reap the consequences. Hopefully, they'll make fewer mistakes when they get their hands on credit.

* Diana Clement is an Auckland-based freelance journalist.