Teaching children, teens and young adults the value of saving and managing money will put them firmly on the path to wealth creation, instilling confidence and a sense of independence along the way.
To help your kids grasp the basic concepts, have them earn their money through a weekly allowance, and then show them how to spend wisely, share, save and even invest a small portion.
Once they have mastered the basics of managing their money, encourage them to do it over and over. As with learning any skill - like crafts, sport or playing the piano - practice makes perfect.
In the long run you will be teaching them how to live within their means - and that’s really the only way to win with money.
EarningThe first step is teaching them to earn their own money, rather than having it given to them. Instead of handing out cash on demand, agree to pay them for set chores like cleaning their rooms, washing dishes, or mowing the lawn.
This doesn’t mean they should never help out around the house without being paid. It’s equally important for them to be happy to lend a hand when you need help in the kitchen or garden, simply because that’s what families do.
AllocationOnce your kids have got to grips with the idea that money doesn’t automatically come from Mom or Dad’s wallet, it’s time to talk about what they should do with their money. Show them how to divide it between spending, saving and giving, putting the money in separate containers – or bank accounts for older children – for each category.
Discuss what they plan to do with the money as well as how they could have divided it differently. The key, though, is to allow your kids to choose how to allocate the money, as well as what they do with it.
Spending wiselyThe best time to teach them about spending wisely is when your kids want something specific. Point out that they have their own money, and they can decide if they really want to spend it or not. This will teach them to think twice before spending on worthless items.
Emphasise that once their money has been spent, it’s gone for good, and they will have to work to earn more to top up their funds.
SavingSaving is an essential component of money management, as it is one of the cornerstones of wealth creation. Encourage your kids to put a portion of all money earned or received as gifts towards savings. Some of these funds can be used for big ticket items, but it’s also important simply to see savings grow.
InvestingOnce they have saved up a fairly large sum, you should encourage older kids to devote a portion of this to suitable investments, such as unit trusts. Help them track the performance of the fund, so they get a feel for how investments work.
SharingGiving is another important aspect of money management, and kids need to feel the impact of helping others at an early age. Leave it to them to select the charity or people they support.
Future rewardsThe earlier kids learn the best ways to earn, save and spend the better they will manage their personal finances throughout their lives. By the time your kids are old enough to earn a living their money management skills should be well-established, which will set them up for a lifetime of financial freedom.