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Explaining money to childrenThe Star Online - Tapping the 50 Plus Market by Carol Yip

By Brigitte Rozario
October 19, 2009

Children should be taught about money from a young age. They need to learn to value money and shouldn't be given everything they want. They should be taught to save and that money is not easy to come by.

Carol Yip, founder and CEO of Abacus for Money, says we should start teaching children about money before they're even six years old.

“This is because, at a tender age up to six years old, a child learns by observation, conversation and experience. Their ability to learn at this stage of growing up is very high. Therefore, parenting of young children warrants a tremendous amount of proper learning methods and communication skills if we want to be effective parents right from the start of our child’s life.”

Yip: 'Saving money is about the practices at home.'
Yip says teaching children about money starts at home and it starts with the parents. Parents teach their children about being good and having values; similarly teaching children to value money should be one of the important lessons taught at home.

According to Yip, it's not a matter of showing children money and repeating to them that they need to save. Children learn about money from observing parents and how they treat, value and save money.

“It's about psychology and how the parents see money and how they value it. There needs to be communication established first between the parents with regards to money and how they want to bring up the children.

“Teaching money to kids is not about showing them physical money. That's only a small part of it. It's more about how the whole family behaves, where they go, where they eat, where they go for holidays …. In a way all this teaches kids that this is what life is all about.

“So whenever they have money they will spend as and where they think fit as demonstrated by their parents.

“Saving money is about the practices at home. You can show a child how to save money by not spending too much and by comparing prices of goods and going for the cheaper option. That's one way you can teach children to save money,” she says.

Saving money

Children are often given money as gifts or as an allowance. Parents need to explain to children the value of saving. Yip says there are two ways of teaching – words and action.

“If the kids don't see mum and dad saving money they won't either. Every time they see their parents arguing about money and not saving – this again is teaching them something.

“Money is one of the basic fundamentals you learn at home – you cannot cheat, you cannot lie or fight and similarly you should save money.”

What sorts of tools should you use to teach children to save? There are parents who use the three envelopes or three boxes method to teach their children to save. Money put in Box 1 is for spending; money put in Box 2 is for saving; and money put in Box 3 is for gifts/charity.

Yip says the tools for teaching children to save could vary but the foundation must be set by the parents through the example set.

“Our grandparents and parents knew that saving was important because they were born into an environment of hardship. You had to earn your money and to get what you wanted you needed to save before you could buy because there was no facility like credit card then.

“Things have advanced so much and people have created new teaching methods now. There's nothing wrong with that but I always argue why can't we just go back to the basics of explaining that it's important to save, no matter how we save.

“No matter how you segment your money, when there's an emergency and you need more, you will dip into the other segments.

“You've got to be real. For me money not spent is saved. And whatever is saved you can do with as you like - give it away to charity, or buy something. It's up to you.”

Money not spent is saved, says Yip.

Yip believes it doesn't matter how much money parents have and how much joy they derive from showering their children with toys and gifts. Parents still need to show some restraint as it is good for children to know that gifts are not free and are not given for no reason and purpose.

Parents should also not shower children with gifts every time they return from a business trip.

“There is really no need to do so.

“Your children may not be able to appreciate your hard work because the gifts to them may mean that they deserve to be rewarded whenever you are working away from home.

“The next time your children ask why you have to go to work or travel overseas, it is wise for you to respond along these lines: 'I am fortunate because I get to go do interesting work and earn money, so we will be able to buy things that we need'.”

This way, children will understand that money is earned, and it puts money in a positive light.

Be wary of outside influences

Despite parents' best efforts, they often find their children being influenced by friends and external factors like what they see on TV or what games their friends are playing or the clothes their cousins are wearing.

Yip says this is when parents have to be disciplined and not give in to their children's demands.

“Parents need to inject a lot of self-confidence in the child, a lot of love and support so that they don't feel they are lacking anything and when they go to school they are okay and they don't need to compare themselves with others.

“Money creates an identity. What you buy, use, wear – all this creates your identity. If a person has a strong identity, self worth or self-esteem, he won't be impacted by the social influences.”

Learning to budget

Teaching children to budget is a family affair. It's about the family getting together to talk about money. It should begin as a family practice. Even before having children, the couple must practise having a budget and living within that budget.

Yip recommends couples sit down to discuss how much they make, how much to spend and how much to save. Then it becomes part of life when they start a family. As the child grows up, he or she will hear words like “budget” and it becomes part of family life.

When the children are old enough you might want to get them involved too. There's no specific age when you start teaching them to budget.

It's all about what they hear and what they see at home.

“I would say yes it's important as they grow up to show them how much you pay for the bills. If you don't want to tell the children how much you earn then show them how much you spend on the family. You cannot expect your kids to know how to manage money when you don't give them all the information they need.

“You don't have to tell the children exactly how much you make but rationalise with them by explaining this is how much we spend and we have to work hard to earn the money to pay all the bills. Show them the numbers. Explain to them you have to save up so that there's money to buy something if you need it in future. That is one way of doing it.”

Yip says parents can use their surroundings as an example to teach their children what will happen if there's no money.

Scaling down

Parents don't have to feel guilty about scaling back on spending for their children.

It’s not about saying, “No, you can’t have that pair of jeans.”

It’s about saying, “Why don’t you put them on your list for Christmas, or for your birthday?”

If your children insist they need an item now, then Yip suggests making them earn it with jobs and projects around the house.

“Be mindful that while you are conscious of good money habits for your children, you need to ensure that the grandparents, aunts, uncles, friends or adults around them don’t indulge your children with gifts, giving your children the message that if they cannot get what they want from you, they can get it from them,” says Yip.

At the end of the day, teaching children about money begins at home with what children learn from their parents. Remember, actions speak louder than words. So, they will learn from your spending habits and your spendthrift ways rather than your constant nagging to save money.

“Your good money skills will rub off on your children!” quips Yip.

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