One of parents' frustrations is kids wanting things without understanding that "money does not grow on trees". The dilemma of whether or not to explain to kids about money, bills and finances grows as the kids develop and have more requests and greater needs.
Unfortunately, handling money is not something we learn at school. Just like many other life skills that we find necessary in adulthood, money management is also neglected while lots of energy is wasted on high levels of math.
If you examine the curriculum your kids are covering from prep to year 12 you can understand why many of them will go to university or get tertiary education but only one kid per class will be wealthy. Are you ready to make sure it is your kid?
Handling money is something we all need long before we leave home. When friends have brand-name shoes or a computer game and your kid wants them too, your kid's ability to understand money is going to be very handy. So if you wonder when it is the right time to learn about money, my answer is: the minute your kid can count to 10.
Children can be taught at a young age that money is their way to get the things they want in life. It is, after all, your way of getting the things you want in life.
Tips to teach kids about money
A bit of history
The first thing you need to do in order to teach your kid about money is to explain the history of money. Tell them about how people used to trade with their neighbours: "I will give you apples and you will give me carrots". Then they realised that some things take longer to grow, so they decided that some things are worth more. This evolved when they came to the market to trade for the things they wanted. Money came to be when people weighed pieces gold or silver and would trade for it by weight (just think of the British currency called "Pound", or the Israeli currency called "Shekel", which means "something that is weighed"). Explain to your young kid that money was a great thing that happened to us because we can buy whatever we want and not just what our neighbours grow.
Pocket money - weekly or in return for chores
Decide if you want to give your kids pocket money every week or as a reward for doing chores. Stick to at least once a week, because young kids' perception of time is not fully developed and 7 days seems to them like a very long time.
Some believe that giving pocket money should not be a reward. Others think that it is a good way to teach kids that money does not just fall from the sky and that we need to work for it. If you have difficulties finding chores for young kids, remember that small things like making the bed, helping clear the table after dinner and helping with the laundry can be fun chores that will teach kids responsibility and sharing.
Whatever you choose, stick to your schedule and always, always hold a ceremony of giving your kids their money.
Emotional chores
If you do choose to give money based on chores, remember you do not have to reward your kids for things they do for you. You can always reward them for things they do for themselves. "Emotional stretches" are a good reason to reward young kids (and older kids and teens and even adults...). Give them coins each time they manage to do something that was hard for them. Being nice to a sibling, doing their homework without being told, taking a shower by themselves, waiting patiently when mum or dad are on the phone... Every time they do something that is hard for them, reward them to promote their good behaviour and personal growth.
Pocket money rules
When you choose to give pocket money as a reward, remember that the rules must be understood by everyone involved. Kids must understand how much you give and for what. If your child can read, make a list of the chores (and/or emotional stretches) with their matching reward amount. If your child is younger, draw pictures or cut them from a magazine and draw circles to represent the coins they will get for each task. Having an understanding will prevent bargaining and allow both parents to handle the situation in the same way.
Money management
Kids must know what falls into the category of what they need to purchase and what comes out of mum and dad's budget. Think about this before you start teaching your kid about money. You must be clear with yourself whether you pay for food, for snacks at school, for sweets, for treats or for anything else the kids ask for. Whatever you decide is good, as long as you have a good explanation for yourself and you stick to it.
Piggy bank
Get your child a box to put their money in. Any piggy bank that does not allow the kids to take the money out is a cruel thing for your kid. It does the exact opposite of what money management is all about. Money is not there to keep. It is there to use wisely.
Less is sometimes more
Young kids find it hard to understand that a $1 coin is worth more than 20 coins of 5 cents each. It takes a while for them to understand that the value of the money is not measured simply by the number of coins. Therefore, always use the smallest coins to give them money, to give them the feeling they have plenty of money. Around the age of 6, when they learn the arithmetic of money at school, they will learn the value of each coin. When they do understand this, start exchanging single cents for 10 cents, 10 cents for 25 or 50 cents and 50 cents for dollars, etc.
Wallet
Get your kid a wallet to take with them whenever you go out. When a young kid takes a wallet with them for shopping, this is the greatest lesson about money management. When you go shopping and your kid asks for you to buy them things, refer them to their wallet and explain what they can buy with the money that they have. Always show them the options, "This costs this many coins, the other thing you want costs that many coins", and teach them to choose. When they see the money going out of their own wallet, they are not so enthusiastic about buying things, and if they are still enthusiastic, the feeling disappears after the first time when they realise they have no money left in their wallet.
Loans
If you go with your kid somewhere and they did not bring their wallet, use the opportunity to teach them about lending and let them borrow some money until you get home. Only lend them amounts they can return and make sure they give you the money back the minute you get home. If they have their wallet with them, but not enough money and they ask for a loan, make sure they understand what this means. Again, time is not something they understand and if you tell them, "That means that next month I will not give you your pocket money", they might not understand. Just like in real life, teach them that things that require loans also require more time to think about. In these cases, not giving them the loan, or giving part of the loan is better for your kids than being nice and giving it to them whenever they want.
Savings
The first time your young kids ask you for a loan, be happy, because now you can teach them about savings. Only when kids want something beyond their financial means can you explain why saving money is a good idea. Teach them to always put 10% of their money aside. At a young age, they will not understand what 10% is but tell them it is a tiny piggy bank in the piggy bank of money you keep there for emergency. This is the money you keep for something big or special that you want later. Tell them to put 1 out of every 10 coins in the tiny piggy bank. Saving is a good lesson in waiting, something that is hard for young kids, because their perception of time is not fully formed.
Young children can learn about money from as early an age as 3. Having a healthy attitude towards money is important to help your kid grow with skills that school is not going to give them. They are going to need them desperately the minute they leave home. If you think they are too young to know about money, remember that one day they will have to pay for your nursing home...
