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Teaching your kids money management skills

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Managing money well is a topic that is sorely lacking in our school curriculums, and one that many mums and dads don't discuss with their kids. It could be the case that parents have not had much money education themselves, so it is not something they think to chat about with their kids. Other times, people are raised in families where "money is not discussed" as historically, how much you earn, spend or save has been a taboo topic at the dinner table. The consequence of this is that so many young adults enter the world ill equipped to tackle their finances, and this often leads to debt and depression. But you can help your kids on the road to financial security, simply by teaching them a few key skills. Lesson 1 - It is never too early to start Begin talking about the value of money with your kids when they are toddlers and involve them more and more in the family finances as they mature. While you obviously do not want to burden them with money worries, you should let them get a glimpse of the realities of money management in the household. For instance, instead of telling them "We can't afford that Kinder Surprise", you could explain that you work hard to earn an income to pay for things, and you have to make choices - Kinder Surprise chocolate egg or a carton of eggs to make healthy breakfasts? This involved them in your financial choices in a small way, and shows your kids that money is not in endless supply. There are loads of educational board games and apps that tackle this topic, which you can begin playing with them at the appropriate age. Lesson 2 - Implement good savings habits It could be using the jam jar system to divide their pocket money into "spend", "save" and "donate" categories or pledging to match any money they save from birthday cards or a part-time job. As they get older and can understand mathematics, explain the magic of compound interest to them. You could even hand them the calculator and have them figure out how much money they will have stashed away by their eighteenth birthday, dependant on various saving regimes. Likewise, explain how paying interest works, so they understand that credit cards and car loans can be terrible financial traps and know how to work out the true cost of an item bought with borrowed funds. Help them set short-term financial goals, such as saving up for the latest X-Box game and longer-term financial goals like buying a car or going on an awesome gap year. Lesson 3 - Teach them how to budget When they are little, simple budgeting lessons could take the form of having $5 to spend at the shops and helping them calculate what they can afford to buy and what their priorities are - $5 might mean one large bag of chips or four ice creams they could take home and enjoy throughout the week, for example. When they begin working, another good way to help them visualise the true cost of items is to work out how many hours they have to put in at their after school job to buy the item. That must-have jacked might not seem to desirable when they realise it might cost eight hours of their time. You might also like to try giving them a larger amount of pocket money, from which they have to budget for items such as their bus fare and canteen once a week. If they spend it all on chocolate bars and have to walk to school, the inconvenience will help them understand the difference between wants and needs. Lesson 4 - Be strategic with pocket money Little kids love to see stars accumulate on a chart when they help unpack the dishwasher or popping coins in a jar each time they make their beds. For smaller children, it is best to dole pocket money out on a weekly basis, as they do not have the attention span for long-term planning skills to manage money over a fortnight or month. But as they get older, try paying pocket money on a fortnightly or monthly basis, to help them learn the realities of adult money management. It is likely they will be paid this way when they get a job, so it is important they learn how to make their money last until the next pay cycle, rather than blowing it all in a few days and living thin for the rest of the month. Many parents choose the "one dollar per year of age" system for determining the amount of pocket money they give their kids - so a five-year-old would receive $5 per week, while a 15-year-old would get $15. Others pay based on chores or homework completed, so just think about what works best for your family. Lesson 5 - Set a good example Possibly the best way to ensure your children grow up with good financial habits is to practice what you preach. Involve them in family savings goals for things like new cars and holidays, show them that you live within your means and that you are not defined by "stuff". One way to do this is by making family occasions such as birthdays and anniversaries about fun, memorable experiences rather than gifts - for example, going to the zoo, beach or a concert together instead of buying a pile of presents. If you are always splashing cash out, buying into consumer culture by doing things like upgrading your perfectly good phone the minute a new one comes out, how can you expect them to learn solid habits? You could also adopt your own version of minimalism and implement rules such as for every new toy or item of clothing you buy, something you no longer use must be donated to charity - helping them learn, whilst also helping those less fortunate. Our obsessive need to consume things fuels debt and unhappiness, so if you can set your kids on the right path early, they will be more content as adults.

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