It seems like every day there is another news story about adults mismanaging money: pension funds losing billions of dollars, car companies going bankrupt, and banks being nationalized.
Many commentators have complex explanations for the crisis involving exotic stock market tricks. Fortunately there is a simpler answer than that. Too many people lack basic financial awareness. That is one reason why it is so important that you teach your children about money from an early age. Some of the things I was taught about money growing up were:
• Money is valuable and it involves trade-offs when you use money to buy something.
• Money is directly tied to the work you do and your time
• I learned from example that it is always a good idea to have some savings put away .
A simple yet effective way to introduce your child to money is with an age-appropriate allowance. This way they will learn to value their purchases. After your 10-year-old does some basic chores, give him $20. Later, when your child wishes to buy a toy, remind him that it took two hours of housework to earn the money needed for this purchase. In this way, the child will attach value to money and associate it with work and time .
This lesson is still with me. I often think of purchases in terms of how many hours I have to give up through work to buy them. It makes it a lot harder to splurge on a fancy, but unnecessary new cellphone when I realize the amount of work I would need to do to pay off all the costs associated with it.
At some point your child will wish to buy an item that costs more money than they have. This is a great opportunity to teach him about savings and loans. Explain to him how long it would take to save for the item and debate whether or not the item is worth that time. If after considering this he still want to make the purchase, you may decide to loan him the money. Explain that when borrowing money, he is making a promise to pay it back. This promise is a contract and by breaking it he is doing something wrong.
While growing up I kept a bank account of my own and I was always very excited to put a deposit in and look at my monthly statements. This is a great way to encourage financial responsibility in your child. By giving me my own bank account, my parents kept me interested in saving and taught me to be financially independent.
This is by no means a comprehensive plan for your child, but if you teach him financial responsibility as he grows up, you will have set your child on the path to wise money management This will lead to a more financially secure future for your child.
If we are lucky, the next generation of savers will make better choices with their money than some of us did.
Positive Parenting appears every week in LIFE. This week’s column was written by Sean Lafortune, a fourth-year commerce student working at Family Services of Central Alberta. Lafortune can be reached by calling 403-343-6400 or www.fsca.ca.