We teach our children how to treat other people, how to behave politely, and how to keep themselves safe, but how often do we consciously shape a positive attitude towards money?
Consultant, mentor and credit management expert Sue Salamon from the Boutique Business Consultancy explains why it’s so important, and shares her four tips for raising financially-savvy children.
We pass our money gremlins onto our children
For too long money has been a taboo topic in most homes, leaving kids to learn about money from observing how we handle and react to it, which doesn’t always tell the whole story. As a result, they inherit our money gremlins and pass them to their children.
Whether we want them to or not, our kids copy what they see and hear. So it’s important when it comes to money that we are mindful of our words and actions and ensure they are in alignment and that we’re not giving out mixed messages – do as I say, not as I do.
One of the most powerful lessons you will teach your children is that the way you manage your money needs a purpose or a set of goals. Otherwise, it is very easy to spend mindlessly on things that mean little to us. Goals act as a measure and help us make smarter decisions that bring us closer to achieving the things we truly want.
What’s your money story?
My parents didn’t teach me anything about money. I grew up hearing phrases like, “Money doesn’t grow on trees,” and, “You’ll have to marry a rich man to look after you when you grow up!”
My parents worked very hard and provided a safe environment for me and my brother. They didn’t know any better, but their words and actions made me feel wrong for wanting more and questioning why we didn’t have a car or why we didn’t travel abroad for holidays.
They certainly didn’t believe in keeping up with the Joneses, but they didn’t socialise with others of more affluent means and didn’t encourage me to do so either. In fact, invites to have friends over from more wealthy families were repeatedly rejected. Apparently, they were not the type of friends we should be hanging out with.
Looking back I realise the one thing that they did teach me is that our attitudes to money are often emotional, and our emotions drive many of our spending habits.
As a result, it’s easy to slip into an ‘I deserve it’ mentality or make a habit of treating ourselves lavishly as a coping mechanism. And, with these emotional tendencies driving us, we’ll be less likely to consider how our decisions affect our ability to reach our goals and live the life we truly want.
It’s not all about becoming rich either. Financially literate people, whether they have large or small bank balances, all live ‘rich’ lives because they spend their money in alignment with their values and on what matters most to them.
Four tips for raising financially-savvy children
In my view, finances can no longer be a taboo subject if we want to raise children with a healthy understanding of how to manage money and get the most out of life.
So, with that in mind, here are my four tips on how to help make your kids more financially-savvy.
1) Demonstrate how to run a household
I find very few parents do this. We throw them out into the wild (otherwise known as university) and expect them to fend for themselves. It’s important not to expect your kids to innately know how to pay bills or understand the dangers of credit card overuse.
With older children, explain how you divvy up your money: bills first, savings for retirement and other goals next and anything leftover is ‘fun’ or discretionary money. If your discretionary income includes money for food and fuel for the car, be sure to separate that money from the ‘fun’ money.
They may be surprised by how little fun money there is, which reinforces why you are so careful with any additional purchases you make. Give your kids hands-on experience by managing a budget for back-to-school stuff or a birthday party. More often than not, they will want more than their budget allows, so now they’ll have to figure out what they want the most, make compromises and look for the best deals.
2) Let them make mistakes
This is hard to do when our natural instinct is to protect our children, but we need to let them make their own money mistakes too. Begin to give your kids money at a young age. Give them responsibility to manage their own spending and saving behaviours.
They will make mistakes with their money and will probably spend frivolously for the first couple of weeks, but then they will catch on. They will start to think about their purchases and you will be surprised at some of the decisions you’ll see them make.
Take a deep breath and let them make the mistake. Don’t give in to pleas to give them more money, but perhaps offer extra opportunities for them to earn more money instead.
3) Develop emotional competence
How many things have you bought out of fear, frustration, anger, boredom, loneliness and even happiness? I’m all for rewarding yourself when you achieve a major accomplishment, but some people have a tendency to reward themselves too much and end up in serious debt.
You can never stop feeling emotions – and nor should you – so how can you stop making emotional money decisions? Your goals and values should drive how you spend your money, not your emotions. A goal gives you something to measure against an emotional need that may be clouding your judgement. Without goals, you have little reason to say no.
Kids need to be aware how their emotions can drive their spending. To help prevent emotional shopping, they should ask themselves, “Will this bring me closer or further away from my goal?” It may take a few attempts before they can successfully differentiate between a want and a need but, with regular practice, it will happen.
4) Set money expectations
Kids aren’t born knowing they shouldn’t talk with their mouth full. They learn this is inappropriate because we tell them. And money is no different; we need to set money guidelines for our children.
My son is five and I have taught him that there are three things that he can do with the money he’s received: he can save it, spend it or share it. My goal was to set the expectation that he would give his money a purpose and use that purpose to guide his decisions.
I can’t tell you how much fun it was taking the contents of his money box to the local bank. He delighted in telling the cashier how much each coin was worth and he helped her count it too (very patient cashier!). He came away with a crisp £10 note and a huge smile on his face. He chose to save the money and it’s still safely tucked away in his money box until it finds a purpose.
As he grows older, I fully intend on having more heart-to-heart conversations about how money works. Too many kids head off to university with little understanding of money, debt, credit cards and investing, and many soon find themselves in trouble. This is not the future I want for my son.
Help your kids develop a good relationship with money
Don’t let your kids grow up being intimidated by money simply because they don’t know anything about it. All of this will help them to develop a good relationship with money, even when they develop their own fears about money – and they will.
If they have a good relationship with money, and you have instilled good money habits in them, they will be less likely to be controlled by their fear.
Sue Salamon is a consultant, mentor, credit management and founder of the Boutique Business Consultancy. You can learn more and contact her on her website.Sue Salamon