FOOL'S EYE VIEW
Top Tips To Teach Kids About Money

By Jane Mack (TMFJane)
November 16, 2004

I had a very useful email from a Fool last week following an article I wrote about how many adults were still getting money from their parents. 

I speculated that this state of affairs probably arose because their parents had given them too much when young and that, as a result, they'd grown up with a habit of having their expectations met. I'm not talking about parents who help their children out with a deposit on buying their first home or if an unexpected crisis crops up, by the way - more about those who get into debt because they don't know how to handle their money and then go running to their parents for a hand-out.

As our Fool pointed out in her email, parents often create their kids' bad habits for them, and then admonish them for having them! As a parent herself, she included the top ten tips that she uses on her daughters to teach them about money and I thought they were so good that I asked her permission to share them with you in case you find them useful for your own children. She was kind enough to agree so here they are:

1) Teach your children to save. Start with a piggy bank and then, on a monthly basis, get them to pay the money into their own bank or building society savings account. They will grow up with a sense of achievement around money and a sense of play and reward.

2) Teach them about compound interest. Children who can delay their desire for instant gratification have been shown to do better in all walks of career and financial future. Consider offering them a bonus if they save a certain amount by a deadline – e.g. if they have £10 saved by the holidays then you will add £10 to their savings. This will give them motivation to wait before spending sets up a pattern that will serve them hugely through life.

3) Teach your children to negotiate. Few people in the western world have any idea how to negotiate and therefore never end up earning what they are worth. My girls negotiate for their pocket money each week and they have developed some definite skills for this. I encourage them to negotiate based on what they have done well and how they have behaved towards others. It is fun and light.

4) Play games with them when young – shops, train tickets and so on. Make the most of their natural desire to play. Discovering Monopoly put my daughters' maths results up exponentially!

5) Talk to them. As adults we are shy of talking money to children so they tend to only hear negatives from us such as "Money doesn't grow on trees!". Children, particularly when they're young, tend to assume that what adults do is "right" but because we never explain money to them they have to make up stories in their minds about what is going on in the family.

6) Ask them questions rather than telling them what to do. Asking "How will you feel after you spend all that money on ...." encourages them to consider their spending carefully whereas "That's a total waste of money!" gets their backs up and brings out the rebel in them.

7) Challenge their thinking. Children are naturally creative. Instead of "We can't afford that", ask "How could we afford that?" Get them to think laterally early on and you will have given them an amazing lifelong gift.

8) Challenge your own money monsters – the negative beliefs that nearly all adults hold about money are handed down to their children. Listen to the language and the universal truths you use: "Money is the root of all evil"; "The rich aren't happy"; "Money doesn't make you happy". Think about what your parents taught you about money and whether you really want your children to receive the same beliefs.

9) Be a great role model. Children will be watching you and taking in what you do.

10) Don't think bailing them out is always the loving thing to do. We all need to learn our own lessons. Sometimes a little tough love is the most effective kind.

If you're not very sure about your own money handling skills then teaching your children about money management can be a bit daunting. But by using some or all of the tips above you can give your children a solid foundation which will stand them good stead throughout adulthood. Any maybe you'll be able to avoid having them still hanging on to your apron strings just as you're beginning to look forward to retirement!

More: Check out Make Your Child A Money Expert and visit our Saving For Children centre