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Instilling Good Financial Habits in Children

Written by Michal Lancemore

I was recently asked how to teach children good financial habits in a way they understand.  I am a financial planner, mother of three, and I still struggle with this concept!

The biggest lesson I have learned is that every child is different and will accept or discard lessons subjectively. I have three daughters and they are all completely different when it comes to financial habits.  My eldest (16) saves hard and rarely puts her hand in her wallet, my middle child (13) spends her money before she even has it, and my youngest (11) uses her money to buy things for others.

I know many people who take 50% of whatever money comes their child’s way, and then squirrel it away as “savings” on behalf of their child.

I know others who give money to the children hand over fist.

For mine, the most important lessons in establishing good financial habits include:

Money doesn’t come without effort.

Assigning chores for financial gain is a good way to illustrate this, although many households are different.  Some believe in paid chores, others think every member of the family should chip in towards the general maintenance of the household.  A simple chore chart with a dollar value attached can work so that everyone is aware of their responsibilities and the consequences of not ‘showing up’.  My children have embraced our chore chart and, honestly, I rarely have to prompt them.

Pay oneself first.

Ensuring that you have play money creates a mindset that you don’t have to sacrifice all of today’s fun for tomorrow.  Either end of the spectrum is fraught with risk (saving 100% versus spending 100%) so I think establishing this balance is essential to prevent ‘falling off the wagon’.

Compound interest. 

Teaching kids about the power of interest (and interest on interest!) is critical. Earning money from your money is a real lightbulb moment that most kids will grasp.  Even if it’s just a bit of interest on cash in the bank, you can still drive home the concept by showing them their bank statement.  As Albert Einstein once said “compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. You should hear my children now if I dare borrow cash from them!  They charge like wounded bulls!

Create opportunities for them to make additional money.

Whilst your 15 could search for casual employment, your 10 year might have to get creative to generate additional funds.  Once or twice a year my younger children will set up a stall outside our house and sell plant cuttings in glass bottles that we have saved throughout the year.  We call it a ‘FUNdraiser’ and the reception from the general public is amazing.  I think most people love to see kids being entrepreneurial and will support them in some way.

Lead by example.

I rarely buy brand new or full priced items.  I thrift shop, purchase luxury food items only if they are on sale, and I’m not opposed to picking up the odd item on the sidewalk during hard rubbish week!  These might not be explicit lessons to the children, but they are certainly subliminal and bound to infiltrate their subconscious.

Again, all kids are different, but I think leading by example will have the biggest impact on how your children will form financial habits during adolescence and through

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