MONEY
management is an often-forgotten but crucially important life skill.
Children are not born with any kind of money sense but tend to learn
about money through what they see from others, particularly from you,
their parents. Once your kid starts to get curious about money, discuss
the topic openly and help them form a healthy view on the matter.
If you want your kids to learn how to handle money, give them an allowance. For
your children to appreciate how money really works, nothing beats the
lessons that will come from having their own money. Start them off by
giving an allowance when they are ready.
Children
start learning about money in Grade 1. They are taught to identify
coins and bills first, then move on to problem-solving exercises later
on. However, their grasp of money arithmetic on paper should be
reinforced by actual practice under your supervision. So next time you
are at the store with your kids, let them be the one to conduct the
simple transactions with the cashier. Until such time that a kid can
proficiently compute for change, it wouldn’t be wise to give money to
kids to handle in school on their own just yet.
Communicate the purpose of the allowance.
Different parents have varied reasons and expectations behind the
allowance system so make sure you clearly communicate your purpose for
the allowance and provide your child guideline on how to use the money
properly.
When
children are given money unconditionally, without guidance nor
explanation of its purpose, then their spending behavior is pretty much
left to whim. Allowance must not be seen as an entitlement; it should
teach responsibility.
How much allowance?
In determining how much allowance to give, we parents instinctively
want to find out the “going-rate” among our child’s peers and match that
amount. If you are like most parents and leave it at that, you are
inadvertently leaving your child to blindly follow the spending patterns
of his peer group too.
To
train your kids to become money-smart, it is better to base the amount
of his allowance on the things you want him to buy. Find out the price
range of items sold in school and start from there. Adjust the amount if
he will bring baon from home, or buy everything from the cafeteria.
Giving too much allowance can be just as misguided as providing an
insufficient amount.
Also
keep in mind that kids can have three uses for their money – they can
choose to spend it, save it, or share it. Consider all three areas when
you are coming up with the appropriate amount. Here, you have a golden
opportunity to impart your beliefs and values through a money talk with
your child.
Some lessons are better taught through experience.
Giving allowance sporadically or in varying amounts is not good
training. Set a fixed amount and give this to your child regularly. When
a child’s allowance is scheduled predictably, this teaches them to plan
and time their spending. Also, knowing that there is a limit to their
available funds force kids to think about how much things cost and make
choices between the many things they may want.
Empowered
with the freedom to choose, your child will experience making good
decisions and bad decisions along the way. Let them learn by trial and
error while the stakes are not yet high. If your child receives
allowance on a weekly basis, then finds himself broke by Wednesday, do
not bail him out by giving additional money. Instead, sit your child
down and use this situation to teach him how to budget and space his
purchases over the week. Sparing them from the consequences of their own
actions will rob them of the valuable lesson that mistakes bring.
Besides, if your kid is broke by Wednesday, you can also use the
situation to teach him how to make sandwiches.
Inculcate the habit of saving.
Learning to save at a young age is really important. While they are
still young teach your children to start setting aside a portion of
their allowance as savings. Provide them with a piggy bank, and make
filling it up a fun challenge. Show how small amounts can add up to a
big payload over time. This simple habit is a key principle behind
successful money management, which is to always spend less than what you
have. If you start this practice young enough, your children won’t even
question it.
There
are many creative ways to further encourage saving. As a challenge to
my 12 year old daughter, I committed to match whatever amount she can
raise as savings from her allowances by the end of the school year. And,
boy, did she give me a run for my money. Even I was surprised by how
aggressively a kid can save when given the motivation. When I asked her
how she was able to raise so much savings, she revealed that she hardly
touched her allowances by opting to bring baon prepared from home most
of the time.
It’s
not rocket science, really. Learning how to save money stems from a
desire to prepare for something we want to have in the future. The
ability to delay gratification, which means choosing to forego something
now in order to gain something more valuable or more important to gain
later, is evidence of financial maturity. Training your children to
discipline their spending so that they may set aside savings for the
future is yet another key principle to good financial health.
Be your child’s first money teacher. Ultimately,
it is not how much you have provided your children, but what you have
taught them to do for themselves that will help them succeed in money
management. Cultivate good money habits at home and be a role model for
your kids.
Whether
it’s spending responsibly or saving habitually, teaching your children
some sound financial principles now should help them make smarter
choices about their money as they grow older.
****
April
Amba is a Registered Financial Planner of RFP Philippines. To learn
more about personal financial planning, attend the Batch 29 RFP program
on October 13 to December 8. For more details, please e-mail
info@rfp.ph or visit www.rfp.ph.
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