How to raise finance-savvy kids

Teaching your child about money can reap rewards in the long-term.

As a child, my favourite game was 'shopkeeper.'

It had a simple premise - all of the toys in our playroom were displayed behind a table and one person, usually my older sister, played shopkeeper, while my brother and I used tokens to purchase back the toys.

Like real-life currency, the number of tokens we had for the game was limited. Like real life, demand determined the price my sister charged for her motley collection of worn teddy bears and matchbox cars.

Early on, the game led to tears of frustration as customers quickly used up their tokens. As time went on, we became more prudent - one day deciding we would rather keep our coins altogether. My sister closed the shop in a huff and the game was never quite the same due to the power shift.

Thinking back to that game, I realise how important it was in my approach to money. Instilled in my brain from a very young age, a lesson about value embedded itself and served me well in coming years. I watched others learn the lessons of 'shopkeeper' in their teenage years, or even as adults - when the consequences were far more tangible and sometimes damaging.

So, how important is it to start early when it comes to educating our kids about money?

It's a question financial advisers are often asked, mainly by parents whose children are now young adults, and who fear the time for such lessons has passed.

The answer, of course, is that it is never too late - but much sooner is better than much later.

Losing a bid on a tattered Barbie doll is of less consequence than losing money through investments.

There are also more sophisticated ways to approach the topic than setting up an imaginary shop.

Starting early

Imagine if your children, at any age, understood the responsibility that comes with having money.

Imagine if they thought twice before they spend money on things they didn't need?

Even better, imagine if they knew the basics of saving, investing and budgeting?

Through both educating and inspiring the children of today using age-appropriate and individualised tools, we can create tomorrow's financially responsible adults.

For primary school-aged children, the core lesson should be around saving vs. spending, with a focus on helping them to understand the trade-offs around delayed and delayed gratification.

Simple lessons around this theme can be put in place by simple conversations and activities, including:

  • Providing your child with an allowance, then discussing the option of saving for a greater reward later on, versus spending what they have. They may even opt to save a portion and spend the rest.

  • Helping them to create a budget to plan for the savings goals they want to complete. Encourage them to stick to the budget and positively reinforce their goals. This teaches them discipline and the ability to self-manage.

  • Children respond well to visuals, so try drawing a timeline showing that if they save $2 they will be able to buy their desired item by January, but if they save $4 they will have it twice as quickly.

  • Another approach to inspire saving could involve planning a calendar countdown - similar to an advent calendar but centered on a particular saving goal. This can be a fun approach that teaches patience and also builds excitement as a goal approaches.

  • Set up a bank account and explain to them how interest is paid. Alternatively, you can reward them with an interest payment once they reach a certain amount in savings. The principle is the same.

  • Games like 'Shopkeeper' still have value - or come up with some creative games of your own to get kids engaged and learning about money at the same time!

For financial advice and information please contact your Morgan Stanley Financial Planner.

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