Eight's the age to get kids saving
Many parents leave conversations with their children about the value of money and the benefits of saving until the teenage years.
But a Cambridge University study indicates children are more open to learning about the intricacies of financial management at a much younger age and can develop financial habits as early as the age of seven.
According to the study, there are several stages on the path to learning about money and spending.
These include learning to count, grasping the concept that the money "represents" a certain value and understanding that money can be exchanged for items at a shop. This usually occurs at five to six years of age.
By the age of seven, children will understand that if the money is insufficient for the item, they will not be able to buy it, and if it exceeds the value of the item, they will get change.
By adolescence, children should understand the concept of "earning" pocket money.
It isn't until children can understand the passage of time past a month (which occurs at about the age of eight) that they can learn about the benefits of delaying wants now in order to receive greater benefits later.
It is this understanding that is the key component in successful saving and investing.
So, what can you do to help educate your children as they grow?
- Encourage young children to count household items, explain what you're doing as you purchase items and let them participate in purchases.
- Provide pocket money and use a piggy bank so they can touch and count the coins and notes.
- Set up a bank account and make a trip to the bank an exciting event where they get to put some of their money into their account, where it will earn interest and result in more money later.
- Be firm at the shops. Their pocket money is for their purchases. If they don't have enough, they can either wait until next time or look for a cheaper item. Understanding the need to save in order to purchase some items is a key skill. Failure to understand this concept will likely result in your children spending beyond their means in later life.
Once their savings have reached an appropriate level, help them choose an interest-bearing account, and as they get older educate them about shares and investing.
This experience will be more real for them if they invest in a company they know. Keep a track of the share price regularly so they experience the ups and downs of owning assets.
Finally, when your teenagers get a part-time job, show them how to divide up their wage into short-term goals, long-term goals and even charity.
- Olivia Maragna is the co-founder of Aspire Retire Financial Services.
Sydney Morning Herald