Gone are the days when children were only taught to read and write. These days wise parents are teaching their children how to manage money from when the child can start counting at the age of one. If a child can count stones then he/she can count and save money. A child who understands what money is, will grow up to be prudent and financially successful. They will not waste or invest money foolishly.
Now that the children are back at school it is perhaps a good time to consider the introduction of some personal finance principles to younger members of the family. Mr and Mrs J. Williams live in Freetown. They have three children and since they were each one year old they have opened a savings bank account for each of them where any money given to them has been saved. The accounts will be handed over to them after they graduate from college.
The challenge for parents these days is that children are being invariably raised in an increasingly consumerist world, with a focus more on eating the cake than on baking it.
Children are being bombarded with advertising material, especially through the ubiquitous TV, such that mini battles are fought within the home over which brand or flavour of noodles should be included on the weekend shopping list.
Virtually every child, with the minutest sense of awareness, wants to dash into the nearest eatery or wants dad to buy a jeep, oblivious of the cost implications. This is a testimony to the fact that children are already under pressure at an early age to live the glamorous lifestyles often touted as ideal.
But it is trite that a “see all, buy all” attitude is the sure path to financial ruin and that the spending decision is all about opportunity cost.
Parents, therefore, have a duty to impart practical financial skills and even more importantly, financial values in their offspring to prepare them for a fulfilling life in the future.
The first lesson, perhaps, is to show that money does not grow on trees. Children must be made to realise that money is earned through work and that it comes in limited supplies.
Personal finance experts suggest that this will sink easy, if the parent sets the right example. Children watch their parents’ every move and the way the parent deals with personal finance issues may exert the most influence in shaping their own attitudes towards money. Direct, hands-on experience is perhaps the way to go. Since children like being part of the bigger family picture, they can easily learn lessons about financial values.
If they realise that their parents take personal finance seriously, and that money is a resource to be used wisely, they are likely to follow the example. The very young children could be encouraged to develop some interest in saving money and delayed gratification by getting them to put aside part of the monetary gifts given by relations or family friends and purchasing a toy or clothes at Christmas or other festivities.
Small children could be involved in the shopping and can help compare prices in the supermarket, for example. They will learn something useful and realise mum is prudent with money. Older children can help when the bills are to be paid and can be sent to the bank to pay utility bills. Here, they can learn about day-to-day financial responsibility.
Since most children will enter adult life as workers, it would be useful to get them used to the routine of a regular income and “managing” it right. Practical lessons can be taught by placing children on an allowance, say monthly. If they go broke by the middle of the month, once or twice and no “relief” is forthcoming from either parent, they will better appreciate the need for budgeting. Teenagers can be encouraged to work part time and groomed to earn, save and accumulate money.
With the principles of saving and budgeting imbibed, the next big step is to teach them to invest. Parents can help by investing on behalf of their children from their early days, but as they enter their teens, they should be gradually introduced to the world of investment and its various vehicles stocks, mutual funds, treasury bills, property etc.
But most importantly, they must be taught to invest in their greatest asset, which is time.
Young people are in the best position to take advantage of the power of compounding growth. For example, a Le100,000 per year investment in a mutual fund by an 18-year old that records a modest eight per cent return per annum will be worth Le32,800,000.00 by the time he is 60.
Beyond motivation to save and invest, children need to be taught financial values to give them a more rounded view of money, as a means to an end not as an end in itself.
In an affluent society that seems more determined than ever to get more more wealth, more possessions, and more of the status that seems to come with those commodities values and virtues are more important than ever. Teaching your kids the ABCs of money management is crucial, but sharing your good money values can help make your hard work stick.
Children should be allowed to explore the financial realties of citizenship the importance of giving something back to society, in form of taxes or donations to charity.
Watching television can be a source of knowledge and values: Kids are extremely susceptible to the desires and manipulations of advertising, and you can help them see through the hype and teach them that their happiness isn’t dependent on the next big thing.
Parents can take the opportunities of certain financial challenges to highlight specific lessons, such as the principle of opportunity cost.
For example, a parent’s decision to buy a used car instead of a new one and invest in a piece of land to build the family home could teach the children about the pleasures of delayed gratification.
This does not suggest that parents should deprive themselves of necessities, but planning and saving towards a specific goal does bring a sense of accomplishment that will pervade the entire family, and the lesson is never lost. Children should be molded to plan for big purchases, to put their own resourcefulness, as savers and earners, to work.
They should be empowered to show some initiative, make some effort and be willing to make short-term sacrifices for long-term goals, which is the essence of adult life and responsibility. Such values, were the standard a generation ago. But growing up in a society where sudden wealth is no longer questioned makes it imperative for parents to redouble their efforts to setting their children on the path to financial responsibility.
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John F Fowler .MCIM, is an International marketing and business consultant, Motivational/Empowerment speaker and Author. He is currently the founder and president of Trinity Empowerment Center a non governmental organization with a vision to empower youths in starting and sustaining small businesses in developing countries. for comments or questions send email to [email protected], or [email protected]
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