TEXT Laura Shin/Forbes.com (April 2015)/Featurewell.com PHOTOS 123RF.com
Here’s a funny story about a mum who was at the supermarket with her three-year-old daughter. Spotting a packet of sweets, the little girl asked to buy some. “Not today,” said her mum. Upon hearing the response, the toddler shouted: “But we have enough money!”
Even children at that age make observations about money. You’ve probably heard your own kids ask: “Are we rich? Are we poor? How much do you make? Why can’t I have it if we can afford it?”
A lot of parents don’t like to answer such questions. “There’s this concern that too much money talk will lead to money-grubbing children or kids who want too much, or focus too much on money,” says Ron Lieber, author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money.
But it is precisely when you teach your kids about money that you can raise them not to be spoilt. Ron describes seven ways in his book to raise children who are financially smart – and the opposite of spoilt.
1. USE ALLOWANCE AS A TEACHING TOOL
Do you pay your kids for helping with the household chores?
And if they don’t do them, they don’t get paid? Ron says: “Children ought to do chores for the same reason we do – because the chores need to be done.”
So if your child doesn’t tidy up his room or help clear the table after dinner, don’t teach him a lesson by withholding money from him. Do other things, like changing the Wi-Fi password or banning him from watching TV – pick something non-monetary that’s important to him.
In his book, Ron describes an innovative way to create a hybrid allowance: One boy earns no money for basic chores, but his parents promised him a bonus if he found and solved other household problems. It got his entrepreneurial juices flowing and after washing his grandparents’ car for extra money, he began doing the same with other people’s vehicles.
2. HAVE YOUR OLDER KIDS WORK
Don’t worry that the time they spend working could be put to better use racking up achievements to shout about in a university application. Ron writes: “Part-time jobs are correlated with high college expectations and good grade point averages, so long as a teenager doesn’t work for more than 15 hours or so each week.” Kids can babysit or even do work for you that you would hire someone else to do, say simple filing and labelling for your home business.
3. EXPLAIN WANTS AND NEEDS
Ron suggests creating a Want/ Need list on paper. For instance, his daughter says she needs running shoes but wants an expensive pair. So, he puts the $25 shoes under Needs, but the $100 shoes under Wants, then draws a horizontal line between the two.
Then, he draws a vertical line in the middle to indicate the price he’s willing to pay for a mid-price but quality product. If his daughter wants anything more expensive, that’s considered a want – and she’d have to pay for the difference.
4. INVOLVE THEM WHEN YOU GIVE TO CHARITY
Set up a charity budget and get your children’s input. With his own eight-year-old daughter, who was too young to fathom dollar amounts, Ron and his wife put 100 beans on their dining room table to represent their donations for the year. They then set aside beans for various charities.
5. SHOW THAT YOU'RE GRATEFUL
Ron’s family has a gratitude ritual: They share a toast at the beginning of every meal to any person or thing that made them happy. He says the kids love it because it’s a grown-up thing and they enjoy clinking glasses. But more importantly, “it helps kids focus on the things they have. If you do that enough, it can lead to not wanting quite as many things as you don’t have,” he notes.
A number of studies have also found high correlations between gratitude and higher grades, life satisfaction and social integration. So even this small, daily moment of appreciation can lead to more things to be grateful for.
6. HAVE THEM SPLIT UP THEIR ALLOWANCE
Set up three jars they can put their money into: Spend, Save and Give. These jars mimic a grown-up budget: Financially healthy adults will spend about 80 per cent of what they earn, save 15 to 20 per cent, and give away the remainder. Each jar serves as a stand-in for values and virtues that are the opposite of spoilt.
SPEND. “Spending is about modesty, thrift and prudence,” says Ron. It’s about having the decision-making skills that allow you to spend or splurge on the things that make you happiest, while avoiding impulse buying.
SAVE. “Saving is about patience,” says Ron. As adults, your kids will need to deploy patience to put money away so they can afford a down payment, their retirement or university fees for their own kids. Studies show that patience in kids is associated with good financial outcomes as an adult. Adults who exhibited self-control as children were more likely to save, have a retirement account and own their homes.
GIVE. “The Give jar is about generosity and gratitude,” he says. You can help your child by paying interest on his Save and Give jars, and setting up “tax” incentives – charge high taxes on Spend money but no (or lower) taxes on Save money. You can also come up with matching savings schemes.
7. LET YOUR KIDS DECIDE WHAT TO SPEND ON
If you want your kids to make smart financial choices, they need autonomy. “They’ll inevitably make mistakes and regret them later when they don’t have money for things they truly want,” says Ron. “But
they won’t be making those mistakes as adults.”
When they’re 10 to 12 years old, you can get your kids to try working with a budget for their school things. For instance, give your child an amount equivalent to what a school bag costs, and also budget enough for two pairs of shoes. Add everything up and hand over the entire amount.
They may decide to buy a more expensive pair of shoes and a cheaper bag to make a trade-off, but Ron says the most important rule to enforce is: No bailouts. If they bought only one pair of shoes instead of two, and if that pair falls to pieces, then they have to earn more money to fix it.
Ron also suggests setting up guidelines to help kids evaluate spending choices, for example, an “hours-of-fun-per-dollar test”, which teaches the concept of return on investment. For instance, he says for many kids, an inexpensive toy cash register ranked high, at 185.5 hours of fun for each dollar, while a talking stuffed animal yielded only 0.08 hours of fun for each dollar. In this case, there’s more value in getting a cheaper item that brings more joy.
This article was originally published in Simply Her September 2015.