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Although a temptation to indulge one’s offspring is natural in every parent, children who grow up without learning the value of money and the consequences of extravagance may be heading for disaster if their bad money management leads them down the slippery slope of financial bankruptcy and debt problems.

It is important to start inculcating sensible money management habits in children. This can help prevent them from developing extravagant spending habits or falling into the trap of living beyond their means through credit cards.


Building a Foundation for Dollars and Sense
Children as young as three can start to learn the basic elements of money and finance. Communication is the key to igniting their interest in money matters.


If you ask preschoolers where money comes from, many may say “ATMs, where else?” This is not a surprising fact as they have often seen their parents “magically” drawing money from the “money machine".


One possible way to spark your child’s interest to learn about money matters and correct this misperception is to explain to your child that “money does not grow on trees” and that the ATM does not magically disburse money. Make the connection that the money in the ATM that you are withdrawing is your own and you are simply taking out the money that you have put in. Children need to learn that one needs to work in order to earn money. It is also important to inculcate the discipline of saving and the concept of thrift from a tender age.


The bottom line in educating the children is to lay a foundation for good saving habits and to allow them to understand how to make sound money choices with the allowances and monetary gifts they receive during Chinese New Year, birthdays etc. Do find ways to consciously exploit everyday opportunities like ATM withdrawals or grocery shopping to explain the principles of wise money management or the concepts behind monetary transactions to your children.


Saving Early
Fostering the saving habit early in childhood is necessary to start your child’s journey in financial education. Even two-year olds can be taught how to put money into a money box (e.g. a piggy bank or any container for saving money). Although they may not grasp the concept of savings, the introduction of coins and notes and putting them into a money box teaches them basics about money identification and differences between the different denominations.


The saving pattern and the time period allocated for a savings goal should be tailored to the age and maturity of the child. The younger the child is, the shorter his or her attention span will be. Therefore, if a young child is intending to save enough money to purchase a certain item, the item should be attainable within a short period of time in order to prevent the child from feeling that saving is a hopeless, endless endeavor.


On the other hand, if the child is older, the saving pattern could be altered by setting a larger savings goal. Encouraging children to save for a few months before they can purchase a favourite toy can teach them the virtues of patience and deferred gratification.


Saving habits can be inculcated more effectively if children can witness and observe the actual accumulation of their savings. Some parents use a clear jar rather than a money box as a young child may feel that the money is "gone” if they cannot see it. Visual representations are important for children and putting up a picture of the item they are saving for in their “bank” reinforces their motivation to save. Tracking your children’s progress through a chart also motivates them to save because the chart serves a reminder of their discipline and achievements.


Another method of encouraging your child includes matching his or her savings amount. So if your child saves 50 cents a day, you can encourage him/ her by also contributing 50 cents to his /her savings. Besides rewarding the child’s efforts, it can also help reinforce the saving habit and spur him/her on to save for future financial goals.


As the child becomes more proficient in saving in one jar or money box, parents may introduce more sophisticated concepts. For instance, they can introduce four money boxes to convey the importance of saving for different purposes. The child may distribute his savings across four different money boxes. They are namely:

  1. a spending bank for money to be used soon,
  2. a saving bank for money to be used later,
  3. an investing bank for money to grow on its own (take the opportunity to open a bank account for your child, update the passbook and teach your child about interest, deposits and loans) and
  4. a bank for donations to help others.

The practice of “save some, invest some, share some and spend some” not only provides children with opportunities to develop good money habits, but also teaches them to look beyond their own needs and care for the less fortunate.


Breaking the Bank
Making children understand that whatever you spend must be supported by what you save is a great way of teaching them how to live within their means. When your children ask for something in the store, explain to them that you will have to pay for it and that it is not free. Suggest that they utilize the savings in their money boxes if they truly want the item. For younger children who may need more visual representations of the concept, you should also allow them to see the money, hold it, pay for the item at the checkout counter, and receive the receipt along with the item.


With older children, the concept of “needs versus wants” should also be introduced in tandem with learning how to spend only what you save.


An easy way to teach this concept is to take your kids out for a trip to the supermarket. When you are in the midst of shopping for the family groceries, show your kids why some purchases are necessary while others are optional. In addition, draw their attention to the prices of items and highlight the existence of discount coupons or weekly sales. By doing this, your children will be taught that in spending, we can save too and this will equate to more money remaining in daddy’s money box.


Even at their favourite restaurant, you can ask your children to compare menu items and prices. Let them exercise their arithmetic skills by asking them to add up the bill. This will make them more conscious of the amount that they are spending and encourage them to differentiate between what they really want and what they are simply choosing on a mere whim.


Caught and Taught – Wise Money Management
Teaching children about money management habits is not merely telling them what you want them to do. Children learn through experience. Encouraging them to save through their money boxes or allowing them to handle their own money during “field trips” has a more lasting impact. Hence, always seize real-life opportunities to teach your children the benefits of good money management.


Taking the time to teach your children the lessons of good money management will probably be one of the best investments of your time. These lessons will equip your children with the skills to secure a good financial future for themselves and their families. If letting go of the apron strings is the hardest thing a parent can do, letting go in the knowledge that your child is going to be a financially independent and responsible adult will be more reassuring.


This article is brought to you by MoneySENSE in collaboration with Ngee Ann Polytechnic, School of Business and Accountancy, as part of the MoneySENSE national financial education programme. Ngee Ann Polytechnic has been conducting financial education programmes for students since 2002. Check out www.moneysense.gov.sg for more information on personal finance matters.

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