In a wonderful toy shop in Devon last week, Lara learnt one of life's toughest lessons: the value of money. It was one of those gorgeous shops full of wooden toys, Waldorf and Montessori delights, perfect dolls and dolly clothes, and lots of beautifully crafted delights. But she had only two crisp ten pound notes burning a hole in her purse, so what was she to buy?!
She deliberated for ages over the proper handmade old-fashioned rag dolls, deciding which was her favourite; but then there was the stall of wooden fruits and vegetables; the adorable doll's house that would look beautiful in her mansion; and, oh no Mummy, they've got Sylvanians too! A hard lesson, deciding what exactly she could get for her £20. Of course, thinking it was all adorable too, I was sorely tempted to up her budget, but would that be the right thing to do?
We're not alone. Age 5-7 is considered by many to be the ideal age to teach children about the value of money, as revealed recently in a survey conducted by icount, the pre-paid MasterCard people. In their survey of 1000 parents, they found that 44% think children should be taught the value of money between the ages of 5-7, while 31% thought it should bee a bit later at ages 8-10. Most parents said that they thought giving pocket money is the best way to teach children about the value of money, combined with encouraging them to make their own financial decisions.
So just how can you help children learn the value of money?
1. Talk Money
Talk money from the earliest age, show them your notes and coins and let toddlers hand over the notes to the shopkeeper. Give them a few pennies from the change to start saving in their piggy bank. As soon as they can count and do simple maths processes, get them involved. Encourage your child to check your change, or add up a shopping list, working out how many items you can buy for a set amount.
2. Value Money
Equally, talk to them about your money values, explain what you are saving for and why. Talk about how you can get there, and model how to make wise spending decisions on your saving journey. At the supermarket, show them how to compare products and prices - is the brand really worth twice the price of the standard product? Is a packet of 5 chocolate bars better value than two single ones?
3. Channel Maslow
Explain the basics of Maslow's Hierarchy of Needs to your child. Show them how well off the majority of us are in the west with a roof over our heads, clothes in our wardrobes, and food in our cupboards. Anything else is just a want. After all, no-one actually needs a car/iPhone/XBox/holiday. Help your child to learn the difference between needs and wants, preparing them for making good spending decisions in the future.
4. Set Goals
Stick to the rule that toys are for birthdays, Christmases or other special occasions. Other than that, your child needs to buy their own wants at the toy shop or even the supermarket. Show them how to set goals and work towards them. How many weeks pocket money will they need for the latest want-want-want toy? Delayed gratification is tough, but goal setting helps children and young people learn the value of money, how to save, and ultimately helps them to become responsible for their own financial future.
Even if they have no savings goal in mind at the moment, encourage them to save a certain percentage of their pocket money or allowance for future purchases. Giving pocket money in smaller denominations can help with dividing it between spend and save pots. Ask your child to go to the bank or building society with you to pay their money in each month, and ask the financial provider for an old-fashioned savings book. Seeing the numbers go up after each deposit is a great incentive!
5. Give Them a Boost
You could also take the opportunity to teach them about interest and offer to pay interest at home, that compound thing will be a revelation! Many parents also offer to match everything their child saves, a time-honoured way to get the saving bug started. Older children could also be encouraged to do small jobs and chores for extended family, friends and neighbours. Car washing, dog walking, and small gardening jobs are good ways to start.
6. Get Them Involved
Don't hide family finances from your kids, however good or bad they might be. Show them how you budget, save and plan for the future. Talk to them about any mistakes you've made in the past and illustrate how you will change things in the future (not with a longed-for lottery win!) Show them the records you keep, how you plan for big purchases or manage the monthly household accounts.
7. Budget, Plan and Model
Food shopping is the ideal classroom for learning the value of money. Talk about how you make purchasing decisions - spending 80% of your budget on chocolate biscuits may be fun but not ideal. Give your child a small amount and ask them to choose the fruit or treats for the week for the family. How far will their budget stretch? Demonstrate how to meal plan, how to write a shopping list, how to use up leftovers, how to find worthwhile deals and bargains etc.
8. Make Mistakes
Be open about mistakes you have made, both in the past and the present. Maybe that canary yellow raincoat wasn't the bargain it seemed in last year's sale? Or were the 5 pack of school shirts such bad quality that they only lasted 5 minutes? Allow your child to make mistakes too. Don't criticise or do an 'I told you so', but do discuss the pros and cons of the purchase with them, and work out how future spending could be better. Encourage them to research before making major purchases, wait for the right time to buy, and employ the spending-by-choice technique, selecting at least three other things money could be spent on once it has been decided to make a purchase
9. Help Them Develop a Critical Voice
Advertising is glamorous, inviting, exciting and very, very seductive. One of the best things you can do for your child is to teach them how to evaluate adverts on television, social media, and in print. Encourage them to ask pertinent questions about the product and the message being conveyed. Is it really that good? Will the product perform as the ad suggests? Are all things shown included in the price? Is there something better out there? Make charity shops and car boot sales an acceptable hunting ground, why pay full price if you can get it for less?
10. Keep Talking
Explain why credit cards and loans are a bad idea in most cases. Explain that credit is effectively renting someone else's money, and the costs for this can be extortionate. If possible, it is far cheaper to save up rather than borrow. If you use credit cards carefully (paying off the balance in full each month), explain to your child how and why you do this. But beware that the credit message is usually a big shiny, flashing !!!SPEND!!! sign and this can be difficult for teens and young people to resist. A pre-paid MasterCard like icount's could be a more sensible option.
Lead by example, for example not using shopping trips as a fun leisure activity, constantly replacing technology, or making purchases important to your self-esteem and image. Show your children by example that what you buy and spend doesn't determine who you are. Make financial conversations a regular and normal part of your family life. Increase pocket money each year, and encourage children to save a proportion of any birthday or Christmas money received. Talk to your children about bigger fiscal matters too, about inflation, GDP, and other economic issues, both macro and micro.
Financial intelligence is one of the greatest thing you can teach your child, and will help them have a better future. Take some time each week to move them forward in establishing good habits.
And what of Lara in the toy shop? Clutching her £20, she bought some lovely things for her dolls' house (£7.50) and pocketed the rest of the money. "Well, I might see something else tomorrow, Mummy." I guess we must be doing something right!