HAVE you heard of the forest where the money trees grow?
The summer school holidays are at their height, and, for parents of children and teenagers everywhere, so is the spending season.
And which of us has not heard their plea: “Of course we can afford it – you just get more money out of the wall. I’ve seen you do it!”
Well, while we’re waiting for the dust to settle after Brexit, this might be a good time to step aside from the heavyweight discussion of the world of pensions and investments, and take a light-hearted look at how we do our bit to educate our children about money, and teach them basic money management skills.
As we know, children come into this world pre-programmed with the belief that money grows on trees. If this forest did exist, it would blow the Giant’s Causeway out of the water as our most popular tourist destination.
Teaching our little, and even not-so-little ones how to handle money is an investment that will give them skills that will prove crucial on the long road to adulthood – and beyond.
Well, the good news (or the bad news, depending on how you look at it) is that, left to themselves, children’s money management habits will come from observing their parents in early childhood. If your routine consists of a payday splurge at the clothing store, the shoe shop and the restaurant, followed by a tight week at the end of the month, it’s likely they are soaking that habit in right now.
So what are the first practical steps to teach them money skills?
To introduce younger children to money basics, you can start by counting coins to show them the idea of ‘equivalency’ – 2 x 10p’s to a twenty, 5 to a 50, and 2 x 50s to £1. Introduce them to the ‘piggy bank’ concept, but using a clear jar so that they can see their coins accumulate. Then act out the roles of shopkeeper and customer, to show them how each item has a different price, and teach them price comparisons to get the best value.
Then move on to an important lesson: money is not ice. It doesn’t melt and disappear down the drain, if you don’t spend it right away. In fact, treat it right and a £20 note will actually last until the end of the month (I know adults – maybe you do too - who have still to learn that one).
We have to teach our children that planning their spending is a skill called ‘budgeting’. There are various ways to do this.
One is, to quote my favourite phrase (as used in supermarkets) ‘wigig’ – when it’s gone, it’s gone.
On Friday morning, if your child is under 10, you can give them a set amount of money to spend, and warn them that they need to make it last for the week. A fiver is a good amount these days.
This stage is harder than it sounds, because if they get it wrong, you have to resist the temptation to bail them out before the next pocket money day. They have to see how, financially speaking, actions have consequences. You have to be cruel to be kind.
You might now establish the connection between work and pay, to correct their impression that money simply flows from the cashpoint in the wall. Give them a few chores which must be completed before they get – not their ‘pocket money’ – but their pay.
With children of 8 to 10, you may show them some of the incoming bills, explaining that everything – house, electricity, internet and heat - all have a cost. Teach them to cut costs by saving power, and show them that bills are the major outgoings for any family.
Later, when they’re hitting 12 and 13, peer pressure kicks in. Suddenly only the largest ‘money tree’ will do, because they need, not just any Xbox game, but the latest one; suddenly, it has to be the Adidas tracksuit. This is a good time to focus on long-term savings, with the goal of building the £30 price tag these items entail.
Later still, at 16 or so, encourage them to generate their own cash for the first time by taking a part-time job. Quite apart from connecting work and money, as doing their chores did, they will also experience the need to appear in the workplace reliably and on time, every day.
These steps are not rocket science, they are closer to common sense.
But it’s amazing how many of our teenagers reach the point of going out into the world with no financial planning skills, no concept of the value of money, nor of relying on their own resources to generate it.
Before long, they’re back on the doorstep, increasingly disillusioned with the search for the forest where the money trees grow!
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005
