The Secret to Teaching Kids About Money

In this day & age, most mums (myself included and being at the forefront) delude themselves with this kind of thinking;

• My kid will see what I do and learn from it &
• My kid will absorb all my knowledge

Well, if only it was that easy. At least when we were kids, when you reached class six, you would have to be taught Business Education (Otherwise known as B/ED). That was some basics on finance. Today's mums need to take a more active and aggressive role in educating our kids on finances (even though we might not have amazing track records, we want our kids to be finance gurus). This article aims at giving you all the tools to bring up finance geniuses in our homes and give them a head-start in life.


The Secrets

1. Start a Conversation

Feel free to talk to your kid about money and the processes that follow it. Show him/her that you are comfortable and competent with money, and that money is not a forbidden topic or source of shame.
You can also make them work for their wants by giving them age-appropriate chores like taking out the trash, cleaning dishes, washing your car etc.
After a few months of teaching them how to save and spend their allowances/dues from their chores, talk to them about debt. Allow your child to take a loan from you and apply bank rates on repayment. Deduct the premiums from their allowances/dues from their chores. On completion of this illustration, talk about taking debts verses saving to buy the items of their choice.

2. Buy a Piggy Bank or Three

Buy your child a piggy bank as soon as they start school or earlier. There are two ways you can teach your child on saving;

a. One Piggy Bank System
Every time you give your child an allowance, deduct what the child should spend (pocket money), and then 'bank' the rest. Initially I settled for this method (mainly because I didn’t know better). I began teaching Chelimo how to save money through the #52weeksavingschallenge. Every week, on Sundays, I would give Chelimo 100 bob. She would take 20 bob to buy fruits, kangumu, njugu, tamu tamu (never sweets - but that's a story for another day), and deposit 80 bob into her piggy bank. Once a month, I would put 500 bob into her piggy for her. Our #52weeksavingschallenge will end in the last week of December. We will then begin using The Three Piggy Bank System


b. Three Piggy Banks System
Quite recently I came across an article that promotes buying 3 Piggy Banks. One for saving, another spending and the last for gifts & charities. In retrospect, Chelimo will still receive 100 bob. She will put 20 bob for spending in the Spending Bank, 50 bob for saving in the Saving Bank and 30 bob for gifts & charities in the Giving Bank. Her church offering/tithe per week will be 10 bob from her bank plus whatever else I choose to add. I will review this method mid-next year and write a complete pros and cons article on this.

3. Open Up a Bank Account

Once the piggy bank is full, take your child to the real bank and open a kid's savings account. You could go to the KCB Kub Account or the Coorporative Bank - Jumbo Savings Account. Let the child physically count the money and help them sum it up. Take this opportunity to teach your child about interest and get them excited about their money growing in their account.

4. Create a Timeline Checkpoint

Money in the spending jar does not necessarily have to be for extra fruits and snacks (assuming you already buy some for them). One of the best ways to motivate kids on money matters is GOAL SETTING. For Chelimo, we are setting aside 1,000 bob from her piggy bank for buying whatever dress she would like at the end of this year. (It also happens to be her birthday in December).
Using the 3-jar Piggy Bank System is much simpler than setting an arbitrary figure like ours. The child picks a toy/item they would like to have (nothing too expensive - maybe skates, puzzle box etc). If it costs, for example, 2,500 bob, and you need it in 5 months, that would mean that you need to save Kshs. 500/week or 125/month. For Chelimo, that would mean she needs to take up extra chores in the house to make up for the difference.

5. Offer rewards for Saving Money

Kids thrive on praise from their parents. Make a big deal of the growing amount in the Savings Piggy Bank. Take your child to lunch to celebrate savings or if they are like Lexxie, buy them Skittles next time you're doing your monthly shopping and let them know why they are being rewarded.

6. Set a Good Example

Kids love to imitate their parents, so buy yourself a Piggy Bank and save all your coins in them. Make sure to do it consistently and concurrently with them. I bank my coins on Sundays.

7. Match your Child's Contributions

When the piggy bank is full, match your child's contribution. And make sure to leave it as a surprise until the very end, when you are banking the savings. They are therefore more motivated to save more the next cycle.

8. Break Out the 24 Hour Rule

This one is for older kids. If the child sees something at the store/shops that they like, it is better to go home, sleep on it and if they still want it the next day, they are free to buy it. I grew up as an impulse buyer, so hopefully using this tactic will ensure Chelimo isn't one.

AGE APPROPRIATE LESSONS ON MONEY
As documented in Forbes, below are age-appropriate ways to teach kids on finance.

AGE 3-5: You have to wait to get something you like.

Why start so early?

Proverbs 22:6 - Train up a child in the way he should go,And when he is old he will not depart from it. 

The ability to delay gratification can predict how successful one will be as a grown-up.
At this age, when going shopping with your child, before leaving the house, let the child know the purpose of going to shop, for instance, "Chelimo, we are going to buy a gift for your cousin Jayden". While at the shop, patiently remind them why you are there.

I once went with Chelimo to the Supermarket and she threw a tantrum over a lollipop. That was the day I embarked on teaching her about delayed gratification (and also banning sweets, biscuits and sodas in my home). For instance, I would buy her a juice box and tell her she can't have it until we are home. It sucked to be me then, but I'm so grateful I went through with it.

ACTIVITIES:

1. Waiting in line at the swings
2. Teach the 3-Piggy Bank System
3. Set Goals e.g to buy a toy

AGE 6-10: You need to make choices about how to spend money.
Teach the child that money is finite and it’s important to make wise choices, because once they spend the money they have, they don’t have more to spend. Keep up with the previous activities of the 3-Piggy Bank System and Goal Setting.

ACTIVITIES:

1. Include the child in some financial decisions like why you would buy Proctor and Allan cornflakes in the polythene package instead of buying the boxed one. They are both good quality but one is cheaper than the other.
2. Give your child 200 bob when you go to the supermarket and let her make her own choices.
3. Talk aloud when trying to make decisions in the supermarket, for instance, "do we need this? Would it cost less somewhere else" etc.

AGE 11-13: The sooner you save, the faster your money can grow from compound interest.
At this age, you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.

ACTIVITIES:

1. Describe compound interest using specific numbers. Explain, “If you set aside Kshs. 100 every year starting at age 14, you’d have Kshs. 23,000 by age 65, but if you start at age 35, you’ll only have Kshs. 7,000 by age 65.”
2. Have your child do some compound interest calculations on Investor.gov. Here, she can see how much money she’ll earn if she invests a certain amount and it grows by a certain interest rate.
3. Have your child set a longer-term goal for something more expensive than the toys she may have been saving for. Those sorts of tradeoffs, called opportunity costs — what are the things you’re giving up to save money — is a very useful thing to talk about. At this age, kids are trying to not save because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision. For example, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward an iPod.

AGE 14-18: Compare Costs of Colleges
Most of the public universities in Kenya are basically free if you get placed by JAB, or is it Kuccps these days? So if you chose to pay for the Self-Sponsored Module II or for Private Universities, be sure to compare prices with your child and discuss merits of each varsity. But don’t let the price tag discourage your child.

ACTIVITIES:

1. Compare fees and on determining the varsity of choice, let your child come up with a payment plan for each semester. Discuss their plan's merits & demerits and inform them of your preferred plan.
2. Let the child come up with a budget of their living expenses, requirements on a monthly basis, for instance, toiletries they require, stationary, snack list, entertainment expenses, pocket money etc.
3. Let the child research additional loans, — and use calculators to estimate monthly loan payments
4. The child should also research additional scholarships, and grants that are available.

Finally, with this tech-savvy generation, you can use the internet to teach you kid on money matters. One of the sites I recommend is Rich Kid Smart Kid.



Do remember to leave your comments below.

Xoxo,
Miss Cherono.