One of the most important lessons to teach your children is about the value of money. But what are the best ways to do it? We take a look at what the experts have to say.
1. Maths not money.
Harvard Business School professor, Shawn Cole, made headlines recently when he released the results of a study around the relationship between financial education and financial behaviour. In a nutshell, he found there was no relationship. When financial education increased in schools, the resulting financial behaviour of those students in adulthood did not change. However, students required to take additional maths courses ended up better at managing credit, had higher equity in their homes and earned a greater percentage of income from investments. Better maths skills, Cole concluded, gives people the ability to make balanced financial decisions rather than just relying on emotion.
2. Lifelong education.
A 2014 study at the University of Colorado’s Centre for Research on Consumer Financial Decision Making revealed that part of the reason financial education doesn’t have an impact on financial behaviour is because financial education decays over time. The study concluded that, shortly after learning financial management skills, people’s behaviour went back to the way it was before they had learned the new skills.
3. Let children learn from mistakes.
Making mistakes can result in some of life’s most valuable lessons so it make sense to let your children make mistakes with money. Allow children some of their own pocket money and let them do what they want with it. This enables them to experience the negative consequences of a bad decision, hopefully leading to smarter choices next time. There are also a number of great apps available which help children manage their own pocket money. Some popular ones include Bankeroo, Money 4 Jobs and Kids Money.
4. Explain the real cost of things.
Clinical psychologist, Dr Elizabeth Kilbey, in a recent interview with The Guardian, said the cost of a product should be explained in clear terms that make sense to the child. So, if they want an expensive toy, explain how many weeks’ pocket money it will cost, for example. It’s best not to say you can’t afford it as this creates a feeling of being out of control when it comes to money, leading to uncertainty and anxiety around the topic.
Teaching your kids how to best manage their money is something which will help them for life. Constant learning, positive behavioural modelling by parents, open and honest discussions about finances, and personal experience with money are the keys to long-term success.