Raising financially savvy kids

“Money . . . is like a beautiful thoroughbred horse — very powerful and always in action, but unless this horse is trained when very young, it will be an out-of-control and dangerous animal when it grows to maturity” — Dave Ramsey.

Raising financially savvy kids is part of your parental responsibilities. Fortunately, it is not as hard as you may think. Here are three thoughts to get you started:

Set a good example

I have read many parenting books and they’re all in unison: The foundation of effective parenting is leading by example. So, what does this mean in terms of teaching our kids about money? If you want your children to be responsible spenders, you have to show them how.

Don’t “hide” tough financial decisions from your kids: Talk to them about saving up for a special holiday or foregoing certain privileges to stay within your budget. Make no mistake, children watch their parents very carefully.

They also pick up clues from conversations between their parents and other adults — there’s very little you can keep from them. If you want them to live within their means one day, you have to do the same.

Being a parent is a tough job as you have to set a good example in everything you do.

Have money conversations

While financial literacy is part of the school curriculum, it is simply not enough. Children still need to learn at home how to be money savvy. Have age-appropriate conversations about money and use daily events as teachable moments.

For instance, explain to children when you go shopping how the “magic card that gets you everything” actually works and that you have to repay the bank or the retailer at the end of the month for goods bought on credit.

The more you talk to your children about money, the more confident they’ll be to ask you questions, and so the conversation grows. As with other important life issues, you shouldn’t let your kids make their own assumptions or rely on peer advice.

The best way to teach them is to answer their questions honestly. And if they don’t ask any, initiate candid conversations about practical situations that you encounter as a family.

Let them learn from their own mistakes

Pocket money is not a new concept and can be a very effective tool to simulate real-life situations. However, pocket money without any responsibilities serves no purpose.

Help your children to set goals and save over a couple of months to purchase something special. You’ll have the added benefit of teaching them about delayed gratification.

Teach your children about the wonderful power of compound interest by adding extra cash to the money that they’ve saved. For older children, pocket money could be increased to cover clothes and toiletries so they can learn to budget.

We learn best from our own mistakes, and it’s much better — and cheaper — for your child to learn their first few financial lessons in the safety of your home rather than in the real world once they’ve flown the coop.

Your relationship with money is largely formed during childhood. If you want your children to become successful, confident, financially independent adults, teaching them about money is essential.

If you still feel overwhelmed by the prospect, have a look at Ron Lieber’s book “The Opposite of Spoiled”.

The ex-New York Times columnist and Wall Street Journal journalist covers all the basics: The best way to handle the tooth fairy, allowance, chores, charity, savings, birthdays, holidays, cellphones, splurging, clothing, cars, part-time jobs and university fees.

The book is an excellent introduction for parents to start having money conversations with their children. It’s very practical and a great read for anyone keen to take the first step in raising financially savvy kids. — Moneyweb