Teaching your children money management 

I volunteer to teach money management to schoolchildren as part of my personal commitment to the youth of today. I start each class by asking, "Where does money come from?"

One grade four student answered emphatically "The machine," so I probe further. "What do you do when the machine runs out of money?"

He replies rather quickly, as if the answer is obvious. "Go to another machine," he says.

My work is clearly cut out for me

I hold up two plastic cards and ask the class what the difference between the two is. They do not know. One is a credit card and the other is a debit card. However, when I hold up an Air Miles card, the class knows what it is and that you receive "rewards" from using it.

Like it or not, you are responsible for teaching your children money management. If they do not learn money management from you, sadly, they will not learn it. Money management is (for the most part) not taught in our school system.

Think back to your own childhood. Who taught you about money and how to keep track of it? Are you an efficient and effective money manager, or are you passing on bad financial habits to your kids?

Learning the fundamentals of money management is the first step in your children's financial education. Early financial literacy will arm your children with the knowledge they need to know in order to be in control of their financial lives.

Many parents will go to great lengths to make sure that their children receive the best education that money can buy. They send their kids to music lessons, ballet, tennis, summer camps and other character and skill building activities. Unfortunately, they neglect one of the most inexpensive skills their children can acquire.

How to manage money

The ability to manage money is a skill that can be acquired early in life. Saving, budgeting, and investing money are disciplines that should be incorporated into a child's total education. According to the Rand Youth Poll, a market research company, only 35% of parents talk to their kids about money. This means that the other 65% are missing their opportunity to teach their kids how to budget and spend money wisely.

Some parents fail to provide their children with a financial education because of their own past experiences involving money. These parents may have been brought up in a family that kept financial matters secret and discouraged their input in decisions involving money. Some of these adults continue to pass on these beliefs to their own children; the belief that children should not be involved in decisions involving money, because it is of little value or importance to them.

When to start teaching your kids about money

Consider the ages and maturity of your children before deciding when you should start teaching them about money management. Identify what your children are capable of learning and remember to start slowly.

Childcare experts agree that parents should provide their children with the opportunity to become financially literate as early as four or five years old. The first goal for children is to understand the value of money. Teach them the difference between pennies, nickels, dimes, quarters, loonies and toonies. Make your children familiar with all of the coins that we use on a daily basis. An example of this method of teaching would be setting up a coin collection and each week adding a new coin to that collection. Also explaining the value of each coin, and how each coin differs in value would be of benefit.

Another suggestion is to give your children small amounts of cash to make minimal purchases. Spend time with them counting out any change they may receive explaining why they received it. Between the ages of six and nine, kids undergo a mental transformation that allows them to understand the basics of money management. The correlation of money and purchases begins to put the role of money into perspective.

Parents can build on this basic foundation by involving their kids in small financial decisions. Between the ages of ten and twelve, children's sense of time is further developed and they have the ability to save for anticipated purchases.

At this age children should be included in the family's budgeting process and decisions

When Melissa was eight and Michael was thirteen I brought home their father's and my paycheque in cash and put it in the middle of the dining room table. The kids went delirious as they threw the money in the air, rubbed it in their hair, stuffed it down their shirts and pretended to gamble. Melissa and Michael had never seen or felt that much cash in real life before. Their shouts and the high-pitched squeals that they gave over the next two hours still ring loudly in my head.

Now it is time to return to reality and pay the bills. I get out the family budget sheet and show my children the categories on the sheet. The children don't look too excited about the type of categories (food expenses, auto expenses, etc.), but I explain to them that although reality is not always exciting when concerning money, money management is a vital task to acquire. After explaining to the kids the amount of money we are counting out is just for half a month, they look shocked. Their belief was that this much money would last a lot longer than just half a month. The kids start to count out the cash for each item on the sheet and I put it in envelopes marked appropriately for each category.

The money pile on the dining room table is shrinking rapidly, and so is the excitement. Finally, when all the bills have been paid, there is very little left over. My kids are horrified; they had no idea how much it is costing us to live on a daily basis. Michael wants to know what happens to the money that is left on the table. I explain to him that is our 'fun' money. I use examples of 'fun' money; the money that we use on entertainment, shopping and other exciting activities. Both kids want to know how we can increase the amount of the 'fun' money; they both want to go to Disneyland as soon as possible.

Our next step is to review our budget plan and identify what is a need and what is a want. I explain that this is a way that we can reduce our expenses and get to Disneyland faster.

It is amazing how easy it is to get kids to agree to no name brand groceries if they understand what the goal is. First set your family goals - identify why you are creating a budget and make sure everyone has a say in the design.

The ability to manage money is a learned skill. Who is developing that skill in your kids?