Some of us may recall or have heard at least one frustrated parent saying: “Do you think money grows on trees?” This is usually uttered by an annoyed grown-up struggling to fulfil the whims and desires of a child for something they cannot afford.
Helping children develop a healthy relationship with money is important, especially when more than half of young people in a survey say they are struggling to keep up with bills and other financial commitments and less than one third have basic knowledge of financial concepts such as interest rates and inflation.
The ability to manage money, keep our spending in check and plan for unforeseen events and retirement depends a lot on what we learn as children.
Research suggests that saving habits learnt early have long-lasting effects on people when they grow up. George Washington School of Business professor Annamaria Lusardi says financial literacy is strongly related to family financial wealth. So, if you’re a family who has shares and retirement savings, then your children are much more likely to know about concepts like risk diversification than somebody whose parents didn’t.
We’ve compiled some tips to help make your child a money genius:
1. Encourage them with their maths
One school subject that can have an impact on children’s financial ability is maths. In a working paper, Harvard Business School professor of finance Shawn Cole says a lot of money decisions become easier if you’re comfortable with numbers and making numerical comparisons.
Many people make poor financial decisions because they do not understand the costs and benefits of the choices available to them. Maths helps people grasp concepts like exponential growth – which can come in handy when thinking about concepts like compounding.
2. Link pocket money to chores
Children who get allowances have a better understanding of money than those who don’t but research also suggests that giving pocket money alone is an ineffective strategy.
If you don’t do pocket money, and instead give your children cash whenever they ask for it, it might be a good idea to link it to chores, so they realise they have to earn it. However, you have to be prepared to run the risk of your children asking for money for anything you want or need them to do.
3. Talk about debt
Many parents don’t like to discuss financial problems with their children, but if you have debt, it might be better to tell them. A study from North Carolina State University found that school-age children are highly aware of their parents’ financial issues, whether their parents talked to them about money or not.
This could be a perfect time to talk about what you can and can’t afford. This can help them learn how to make hard choices, practise self-control and temper the desire for instant gratification.
4. Explain shopping decisions
Children learn by copying others and noticing patterns in experience, explain Dr David Whitebread and Dr Sue Bingham of the University of Cambridge. This can make every trip to the grocer and every gift purchase an opportunity to explain the difference between wants and needs.
In her book, Mind Over Money, psychologist Claudia Hammond says that when you spend, the kids are watching. So talking out loud through your shopping decisions about what is good value and what isn’t can really help.
5. Show them work is rewarding
Bribing your kids with money to work hard in school may not be the best strategy for raising self-motivated adults.
Teaching kids the difference between present-self (the here and now) versus their future-self (how life will be in years to come) and helping them imagine the consequences of the decisions they make today will go a long way in changing their financial behaviour.
6. It doesn’t always make you happy
Money can buy happiness but it depends how you spend it. Research suggests that spending money on experiences brings more happiness than spending money on things. Reasons include that we adapt to things pretty quickly and usually share experiences with others.
If your kids are able to learn even a few of these lessons, you can rest assured that you’ve probably set them on the path of becoming a money genius.
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