by ipac chairman Arun Abey
[tweetmeme only_single =false http://www.URL.com%5D Developing financial literacy and basic commercial skills is an important part of family life. But it needs to be done in the correct way so as not to undermine the value of family relationships in their own right.
I was recently directed to a great post on Yvette Vignando’s Happy Child blog, where she argues against the notion of paying children to do chores. Her basic premise is that children should be contributing to family life in order to gain a sense of responsibility and contribution to the household, not for commercial benefit. And I agree whole-heartedly.
Research shows families work best when everyone is motivated by a common set of goals and values. When you try to commercialise aspects of family life, you undermine the sense of pride and satisfaction your children get from contributing to these goals and values.
That said, it is important to teach our children a sense of financial responsibility. But rather than introducing a ‘work for reward’ program, where we try rather poorly to emulate the workforce, a better way is to demonstrate how money is used inside the household to enable common goals.
Here are some basic tips to get you started:
make money visible – Working-class families during the Great Depression routinely set jars out in full view of the family marked ‘rent’, ‘food’, ‘clothes’ and so on, showing everyone where the money went. Today money comes from a hole in the wall or a checkout. Make it real. Use cash sometimes, tell your kids how long you worked to earn it, and explain how banks and credit cards work. It’s also a good idea to refrain from buying your child everything they want while providing an explanation.
talk to your kids about the role of money in your life – Most parents would prefer to talk to their kids about sex than money. In fact studies show that the majority of parents lie to their kids when asked how much they earn. This is one of the last taboo topics because how much we earn has important emotional and social implications. But we must learn to help our kids develop a framework for understanding the role of money in their life.
get the kids involved in houesehold budgeting – Explain to kids the expenses involved in running a household and show them the bills for electricity, mortgages, petrol and groceries. And when times are hard, explain and ask them for their suggestions on how to cut back on expenses. Not only will you teach kids about budgeting and probably lower household costs, but you’ll also bring your family together in a common goal.
give kids responsibility for spending – One way to teach kids about money fast is to place them in charge of their discretionary spending. And if you give kids an allowance, have them track the money coming in and going out. This will help kids build healthy financial habits for life including learning how to defer gratification.
teach kids the power of investment – Opening a savings account is a good start but you also need to demonstrate the magic of compound interest. For example, if you and your high-school child save $1,000 a year over six years, and get an interest rate of 5% pa (the long-term norm), then in addition to the $6,000 they’ve saved when they finish school, they’ve earned over another $1,000 of ‘free interest’. This will teach them a valuable lesson in investing.
The ideas from this post have been taken from Arun Abey and Andrew Ford’s book How Much Is Enough: Money Time Happiness, A practical guide to making the right choices. Click here for more details or to download a chapter.