Teaching young children about money

HAVING two children under the age of two, I don’t yet need to teach them about money. In fact, they are teaching me about money, especially the cost of raising children. 

But, I am already thinking about how to teach them about money. I want to make sure they do not become spoiled and they are financially educated, so they will be less vulnerable to temptations and scams.

Some parents believe you shouldn’t talk about money in front of kids. I believe the opposite and think you definitely should talk about money in front of kids. 

As Oscar Wilde famously wrote “When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” 

Here are a few of the tips and tricks that I want to use to teach my kids about money when they are a little bit older. 

* Make money magnets by glueing magnets to coins and putting them on the fridge. Show how many five sen coins you need to equal a 20 sen coin.

* Point out all the different ways that people earn money, starting with those close to them, such as family members. Talk about employees and entrepreneurs and students and retirees and how all of them add value.

* Take your children to a wet market and show them how to negotiate with the sellers and how price differences for the same product could lead to arbitrage.

* Save money with coupons for supermarkets, count the savings and spend them on something fun.

* Create a piggy bank that is split up for saving, donating, spending and investing. Show them they can do multiple things with their money, rather than just spending it.

* Create a savings goal when they want a big-ticket item. Visualise the weekly progress in a chart. Brainstorm with them on how to save money or make more money in order to accelerate the progress. See how long the big-ticket item can hold their interest. Perhaps they realise that if their purchase takes three months to save for it, perhaps it is not worth it after all? 

* Despite all the advantages of plastic, I would use cash for as many transactions as possible. I want my kids to understand money is not some magical entity which grows on trees, but that it is something finite which can be gained and lost, managed and controlled.

* Let them make financial mistakes. I rather have a 10-year-old that is crying because he spent all his pocket money in the candy store and didn’t save anything for the toy store, than a 25-year old who spends all his money on a car and is then evicted from his house because he can’t pay the rent. 

Making mistakes is crucial for learning, just as falling is a necessary part of learning to walk. The earlier they make these mistakes, the smaller the consequences.

Teach them about the finiteness of money by letting them make trade-offs and let them learn to prioritise: the zoo or the amusement park? Bring your own lunch and have money for toys or dine out? A Sony Playstation or a new book or toy every week?

I also reflect back on how my parents taught me about money. For instance, they gave me and my sister vacation money. Where my sister would spend a decent chunk quickly, I would wait until the very last day of the holiday. I would then have an overview of all possible things I could buy and pick the thing I wanted most. 

Of course, by that time, we would have travelled and the thing I wanted most was hundreds of miles away. Alas, we learned different lessons.

Next week: Part 2: How to teach older kids about money.

Mark Reijman is co-founder and managing director of https://www.comparehero.my/, dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, personal loans and broadband plans in Malaysia.