I’m playing catch-up with a grin on my face, seeing that this blog has been active despite my absence last week. What a magnificent thing it is to see people sharing experiences, knowledge, and skills unselfishly with each other. Thank you!
Last week, INQUIRER.net’s personal finance section featured an article on money lessons for children
. Some of the advice may surprise parents. Instead of the traditional “teach children how to do with less”, the article talked about giving children extra allowance so they would learn to budget their extra money. It talked about teaching children the importance of saving, investing, keeping good records, of being content with what they have, of being good stewards of their belongings, of learning how to give to others and enjoying the fruits of their labors so they will not turn out to be misers.
Good, basic advice. Unfortunately, they will all be useless without consistent practice. Let me explain.
Last year, my husband and I increased our eldest child’s allowance precisely to give her some room to budget her extra money. I made a ceremony out of opening her bank account. I let her arrange everything with the bank teller, sign her signature card for the first time and I let her keep her own passbook.
She asked me about inflation and we talked about time value of money. We talked finance over her favorite merienda at a dimsum place, charged to Papa’s account, of course. I saw people looking at us curiously. Perhaps, everybody thought finance was for college students. Well, not for this kid, mom thought proudly. She was all ears and the discussion was totally painless. In fact, it was a lot of fun.
We went home...she went back to her homework…mom went back to her writing. It was almost eight months before we remembered her bank account. Total savings for eight months: around P250, and only because someone gave her extra money. She spent most of her extra allowance on candy.
Children need consistency. Their systems crave it, even if they don’t know it. Talking will not be as effective as constant practice. Worse, if they see you being irresponsible with your credit card purchases, or buying expensive and unnecessary stuff, perhaps falling prey to a toy tantrum at Toy Kingdom even if the tantrum was theirs, the disconnect between sermon and action is going to cost them dearly.
In short, all those financial planning talks and lessons won’t nearly mean as much if our conscious is still riddled with a gotta-have-it mentality. Children need consistency, both in words and actions.
So, if you want to be serious about preparing kids early in life so they could avoid serious money mistakes when they grow up, be prepared to walk the talk as well. Sure, we can’t expect to perfect, but we can be upfront with children regarding our financial goals. Better yet, empower them so they can pick on you when you make mistakes! And hey, remember to breathe when that happens and accept the ribbing with a good sense of humor.
Case in point. Look at yourself from your children’s eyes for a moment. When you buy things for them, do you swipe your credit card to win their love? Or to console? What about to fulfill your own longings (*I* didn’t have Barbie when I was growing up. My child should have one)? Sometimes, do you buy them toys to keep up with other parents? The answers to these questions may not be immediately obvious to you, but your children sense them and absorb them. These motives scream louder than any financial planning sermon you can give.
This is not to say buying toys and nice things is baaaad. MoneySmarts will not be responsible for miserly conduct among its readers! Heaven forbid! J Buying things for the wrong reasons is what we need to avoid.
My daughter has since realized she wanted to save more. She is spending less on candy so that she can spend a planned amount by December and not even mom can keep her from buying what she wants with her reward money. She will definitely be a happy camper. That kind of talk is what I’m counting on to keep her away from bankruptcy when she grows up.
Here are some tips on kids and money I wrote for another magazine a few months ago:
1. Pay for additional chores
. This is a controversial issue that divides financial experts. The idea is to teach children the value of work and give them the skills they need to live independently. However, there is a danger to this. When this is not done properly, children may feel like they are being bribed to do chores in the house. Or, this may result in a power struggle between child and mom. The best system I found so far is to require them to pick up after themselves (clean their room, pick up their toys, wash the dishes) without payment but compensate them for additional or heavier chores like cleaning the rugs or washing the car. This removes the pain out of building personal responsibility in your children and teaches them to find pleasure in work.
2. Buy a piggy bank and open a savings account for your child
. As your child starts earning allowance and gets compensated for work, encourage him to pay himself first before spending extra money on toys and other stuff. This teaches him a very important concept in personal finance. Tell him to set aside 10% to 20% of what he earns and put it in his piggy bank or savings account. Make it a big deal that he has his own money. Help him make targets and goals on how much to save, say, in 6 months time. Give him incentives like matching every P100 with P50. At first or with younger kids, the traditional piggy bank is more effective because they can see the money going into the fat tummy and feel how little Ms. Piggy is getting heavier. When they have enough to open a bank account, make a ceremony out of going to the bank to fill up account forms and lining up to get to the teller. Bank accounts make them feel important and drive home the value of saving more effectively.
3. Strive to be "cool" about mistakes
. As they learn how to handle money, children will make mistakes. Be prepared and be careful how you react. They need a sense of caution, not fear. Talking about mistakes is a perfect teaching opportunity and will help them how to deal with bigger mistakes in the future.
4. Adjust as they grow older
. As children become teens, they want more say on where to put their money. Trust and accountability are major issues. They will definitely come to you with more ideas on what they "need" so you'll have to be firm on what to approve and what needs are actually "wants".
5. Talk about the family budget.
I know a widow who had to raise five children out of her meager income as a teacher. She told me she never had to deal with a temper tantrum caused by things her budget cannot accommodate. She involved the children in budgeting so they know that when she says there is no money, she is not just being stingy.
6. Talk about your investments
. I'm often surprised by how much my near-teenage daughter knows. She observes a lot. Kids are like that. They know more than we think because we often assume that they are into their kinds of things when all the time they are watching and learning about us all the time. Talk to them about why you buy stocks, bonds or mutual funds. Be grateful if they read the business section of your newspaper!
7. Teach them to be an entrepreneur
. As I child, I watched my mother cook polvoron and other what-nots to sell to our neighbors and classmates. These activities teach children that work and money go together and allow them to realize that it will pay to develop marketable skills they can use to earn money as they grow.
Citibank has launched a new booklet called “Use Credit Wisely” as part of its credit education campaign. The book’s three major sections explains all about credit and how it works, gaining financial control and handling hard times such as living with a disability or how to cope with a marriage breakdown and how to avoid fraud, identity theft and our legal rights.
The contents are not as Philippine-centric as I would like it to be and very bank-friendly (pay at least the minimum amount on your credit card promptly to avoid late payment charges), but some portions are very helpful like the part where Citibank gives advice to people who owe too much on their credit cards. The worksheets are also nice.
“Don’t be afraid to work with your creditors to devise a way to pay off your debt. Come up with a plan you can present to them. You may want to pay an equal amount monthly to each creditor, or pay more to the creditor charging the highest interest rate. The first step is to call each creditor. Tell them you want to pay in full but you need more time to pay. Explain your problem. Let them know you’ve taken steps to reduce your spending.”
Sounds like a significant statement, coming from them. I don’t want to try it just to see if the advice would keep away the nasty collection agents, though, haha.
Free offer from Citibank:
Get your own copy of Use Credit Wisely by sharing personal stories of how you've used credit to your advantage - to better manage your household expenses or even start your own business. The first 100 readers to send in their stories will receive their copy compliments of Citibank. Offer limited to participants with a Metro Manila mailing address.
Ssend your stories to me: firstname.lastname@example.org.