Simple Financial Education for your Children

One thought on every parents mind throughout their lives is the wellbeing of their children. They wish and hope for them to enjoy a happy and successful life, whilst avoiding all the potential pitfalls that stand in their way.

In days gone by, teaching and moulding the children to survive the world ahead of them was considered a natural duty of the parents. However, that responsibility has been passed on to the governments and their education systems. Sadly, even if most parents wanted to take that responsibility back, they would find they are unqualified to perform the task.

The education system is designed to teach a broad range of subjects and skills, in an effort to provide a base from which the child can launch into adulthood. Unfortunately, it is heavily loaded with useless information that will most likely never provide any benefit to the child whatsoever.

Undoubtedly, the two most important skills that schools fail to teach are financial and legal skills. The world is full of laws, regulations and contracts, of which we all have to deal with multiple times every year. Providing a sound education in this area will be extremely helpful to all people, as many are completely overwhelmed when receiving a document of a legal nature.

The lack of financial education in society has clearly been evident around the world over the last few years. Consumer and household debt levels have peaked, which indicates the poor ability of people to manage their finances. The peaks and troughs of the economy need to be managed and allowed for, instead of the carefree and reckless consumption attitude which has been prevalent for as long as anyone can remember.

With the governments and schools failing to take any initiative in this area since the global financial crisis arrived, it is clear that the parents must take responsibility for their children’s financial education.

HOW DO I TEACH THEM?

Considering that the vast majority of parents have little or no financial skills to pass on, the need for a strong financial lesson plan to become available has never been more evident.

We can draw lessons from the example of billionaire John D. Rockefeller Jr. Although his children would most likely never need to worry about money in their lifetime, John knew the tremendous value in giving them a financial education.

Apart from their 25c per week allowance, they had to earn the rest of their money themselves. For this reason John raised vegetables and rabbits, giving his five boys an opportunity to work and earn for themselves.

In addition to making them work for their money, he also made them keep personal account books of their money and record every transaction. 10% of their earnings had to be donated to charity, with a further requirement that 10% was saved.

These few lessons are of great importance, but they can be taken further and developed into a modern manual. The financial lessons for children in this century must teach the value of money, the dangers of borrowing on interest, as well as the benefits of saving. Here is one such example:

PLAN OUTLINE

Borrowing some of the points from Mr. Rockefeller, I agree that 10% of all income should be saved and 10% donated to charity. With the children starting young, it will be hard for them to donate $1 each week to charity, so this amount should be accumulated over time and paid in a lump sum, possibly every 6 months.

Children should be encouraged to keep all of their money in cash. Feeling and touching the money develops a sense of importance around cash that can not be gained from using a bank account. Plus trying to juggle three separate accounts for spending, saving and charity over internet banking would prove difficult for youngsters. Two toy banks and a wallet or purse are much more suitable.

Just as the Rockefellers did, getting the children to work in the backyard is a great idea. Its fun, keeps them busy and the money will surely motivate them as well. Most importantly, it will develop a sense of enjoyment around working. Something simple like keeping some chickens in the backyard and selling eggs, or raising pet rabbits, birds or fish and selling the babies are both suitable.

If there is sufficient room, setting up a veggie patch is highly recommended. If space is limited, try growing herbs in pot plants instead. Even eco conscious activities such as recycling can be done to generate some cash, or helping the neighbours with simple jobs they hate to do, such as gardening or washing the car. Haggling over the pay rate to secure the work will be a valuable life lesson.

Most parents pay their children a weekly allowance. This should be stopped as it promotes reliance on others and paves the way for the path to the dole. But instead of scrapping it altogether, convert it into a paid allowance, where they must complete a certain number of odd jobs around the house to earn the money. No doubt they would be doing these jobs anyway, so give them a sense of fulfilment while they are helping.

Each household task should be assigned a set wage. Doing the dishes, sweeping and mopping the floor, or cleaning the toilet could be set at $2 each time. Bigger jobs such as washing the car or mowing the lawn could be $5 each. It’s up to you to set amounts for each job according to what you can afford. Each week set a job list and let the children earn their keep for the week.

At the end of each week, pay each child their wages. Encourage and help them to keep their accounts and make sure that 10% of their wages are allocated to charity and 10% to saving. Allow them to spend the rest of their money and enjoy themselves.

ADVANCED LESSONS

The simple lessons mentioned previously will provide the perfect start in life for young children. However, the world is far more complex than that and as the children get older, some more advanced financial lessons should be given.

Probably the perfect time for the introduction of further lessons would be as soon as the children reach high school. At this stage, their spending demands increase, as they want mobile phones, iPods and a wardrobe full of label clothing. What better time can there be to teach them that they can’t always have everything they want in life.

BORROWING ON INTEREST

Quite possibly the reason behind all of the world’s problems, interest lending is a danger that children must become aware of. It has been responsible for the financial ruin of millions of people worldwide, and some countries and empires too.

Without being warned about the dangers of borrowing of interest, your children are likely to rush out and get a credit card or car loan as soon as they turn 18. This is where many of them come unstuck, as they are unable to meet small payments such as these and their debts balloon out of control.

It is almost impossible to find a society without some influence of interest and unfortunately people have become accustomed to purchasing goods they want with money they don’t have and can’t afford. The practice of saving for all purchases should be highly encouraged to allow them to become familiar with life outside of the interest lending system.

SUPPLY AND DEMAND IN THE WORKPLACE

In the case where there are multiple children, it is quite possible that there are not enough household jobs to spread around between them. This is a perfect opportunity to teach some basic economics and allow them to learn about supply and demand.

Each household job should be put into the open market and allow your children to bid for each job, trying to secure the work for the lowest amount ahead of their siblings. Just like the real world, if they demand a wage that is too high, they might find that the prospective employer finds someone else of equal ability who is willing to work for far less.

Of course, they will also learn not to bid so low that they are working for peanuts, with it highly unlikely that they bid doing the dishes down to 5c. However, when desperate times strike, some of the children may try and take all of the work by bidding very low amounts. This shouldn’t be discouraged, as it will provide a good lesson to the others that sometimes the jobs in western countries are given to people in emerging economies.

BUSINESS INVESTMENT

Apart from the standard business opportunities mentioned previously such as raising chickens or growing vegetables, the children should be encouraged to think of and start their own small businesses.

Every now and then we hear of a young child who has started a business at home and has become very successful. It is certainly possible that your children can do the same thing with a bit of encouragement and assistance.

One area you can help is in providing the finance to get a potential small business off the ground. Unlike the interest lending mentioned above, the loan should be interest and risk free, similar to how an investor will invest into a business.

When providing the funds, a percentage of business profits should be agreed upon as your payment. If the child wants you to play a role in the business and help with a particular aspect, the percentage of profits you receive should be increased. Plus, if you ever want your money back, allow the children to buy your percentage share in the business.

CONCLUSION

The introduction of these life lessons are of critical importance and will teach essential skills for coping in the real world after school. Your children will surely thank you in the future for providing them with these valuable life skills and giving them a head start in life over their peers.