Wednesday, March 11, 2009

Raising children to be 'money-smart'

Allowing children to learn good money management habits can help parents reduce the household bills.

IN THE current challenging times brought about by the global economic crisis, it is now even more important to be open with your children about your finances.

Allowing them to learn money management skills can help you reduce your household bills. Bearing in mind how prices of consumer goods keep increasing, you will need all the help you can get from members of your family, no matter how young they are.

So, why not begin with your precious young ones by teaching them good money management habits! Want to know why this is one of the best things you can do for your children and ultimately for yourself and your family? Read on, and you will find out.

Build a solid foundation in life

Let's face it - managing your finances is a necessary life skill, particularly in this day and age where virtually everything requires money.

Unfortunately, when it comes to kids and money, most parents neglect to teach their children about the basics of money management. This is something parents need to work on because just as you teach your children other good habits, such as brushing their teeth and cleaning up after themselves, you can also teach them good money management habits.

What is most important is teaching your children the value of saving money and not spending their savings on an impulse. This is the starting block that will help them establish solid money management habits that will ultimately benefit not just your children, but you and your children's children as well.

As Warren Buffet aptly put, "Someone's sitting in the shade today because someone planted a tree a long time ago".

Money doesn't grow on trees

Or does it? Why else do banks have branches? - This would typically be a child's sentiment and a disturbing one it is. Kids these days really do believe that money is easy to come by.

Picture this - your son asks you to withdraw more money from an ATM machine when you tell him "No, I can't buy you that new toy because I don't have much money left".

Want to know why he can so casually suggest that to you? It's because he thinks there is an endless flow of cash coming from the ATM machine. That is your more sophisticated version rebutting the ever famous "Money doesn't grow on trees" excuse commonly used by moms and dads worldwide.

Kids naturally go through those stages where they just want this, want that, want more and forget that money has to be earned and prioritised - if people could have whatever they wanted, the world may (or may not) be a better place to live. Once your children hit this stage in their life, you will know it is time to teach them some money management skills.

Instill discipline and save your wallet!

One of the best lifelong lessons that your children can gain from learning money management skills is the art of discipline and we all know how much kids need that! Kids these days are different and many may be shaking heads right now saying that kids now have a mind of their own, not like kids in yesteryears and instilling discipline is easier said than done.


It takes discipline to put aside your hard-earned money - regardless whether from a salary or an allowance - into a savings account or a simple coin box. However, as your children learn the differences between needs and wants, and start saving their money, the discipline gained will spread to other areas of their lives. And ultimately your wallet! They will learn the importance, and have the discipline, to live within their means and reduce the amount of holes they put in your pocket.

Avoid Generation Debt

If your children are now young adults who are still studying in university or are in the early years of their career, then they are part of the generation known as Generation Debt.

If this doesn't sound familiar, then it is because your children have not come to an age where they need to start venturing out on their own yet. But as sure as the sun will come up the next morning, your children will get to that stage in their lives eventually. And when they do, there is a great possibility that their financial decisions will create a spillover effect, that you, the loving parents, will be left to deal with.

Most young adults nowadays enter the workforce with five figure student loans, rack up four figures of stubborn credit card debt, and their savings are miniscule. Add to that the skyrocketing prices of consumer goods and housing and the debt just mounts up.

Therefore, to prevent your children from falling into the same trap as their peers, you have to assist your children in learning how to manage their money today!

Become charitable adults

Money management not only involves learning how to save, spend and invest wisely, it also involves learning the art of giving back to society. This is your opportunity to give your children exposure to charitable organisations and people less fortunate than they are, and a great way to educate the next generation about family values and establishing a sense of appreciation and gratitude for the luxuries they enjoy.

By encouraging charitable action from a young age, your children will eventually become empathic adults who know that their actions can have a positive impact on their surroundings.

You can create an exhaustive list of why it is important to teach your children money management skills.

However, knowing the five reasons mentioned in this article (just in case the reasons mentioned slipped your minds, here they are again: to build a solid foundation in life, because money doesn't grow on trees, to save your wallet by instilling discipline, to avoid generation debt and to become charitable adults) is sufficient for you to begin that process.

"Families function as a child's safety net, but if you do not give that child the tools to knit his own net, so to speak, he may jump into a perilous world with no net at all", says Joline Godfrey

So don't procrastinate! Give your children the tools they need to make their own safety net. Now is a good time as any to start setting your children on the right path for a financially secure future.

This article was written by Securities Industry Development Corporation (SIDC) to educate investors on smart investing. The information provided in this article is for educational purposes only and should not be used as a substitute for legal or other professional advice.

SIDC, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission, Malaysia. It was established in 1994 and incorporated in 2007.

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