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Saturday, July 28, 2012

Teaching children a positive attitude regarding money

We all want the best for our children.  We try to make sure they are safe, are going to a good school and are getting enough love and attention at home.  But how often do we stop to think about what they are learning with regards to money in their daily lives.  After all, they will have to handle money eventually.  Should their financial education begin when they get their first job or earlier when they are at school, or should we be conscious of their financial education from an even younger age?

I'm here to argue that regardless of when we begin a formal education strategy about money, our children will form their own opinions at a very young age.  By the time our children are school age, they usually know what a book is and have some idea about letters, words, numbers, shapes and colours.  It makes sense that they also know what money is and have an opinion about how to use it.  They have seen us shop innumerable times in their lives.

Our children have also heard us discussing money.   We probably haven't even been aware of the messages they have been receiving.  But if we want to give our children an advantage in the world financially, perhaps we should be thinking about what we say.  Is the subject of money in your house associated with arguments and negativity or does it bring about a positive feeling?  Is it a taboo subject to which each member of the family acknowledges the unspoken rule not to speak of it?

Have a think about what type of feeling you get when you think about money.  Chances are, your children feel the same way.  What beliefs do you have?  That money is scarce, evil, abundant, fluid, powerful, useful, easy to get, difficult to keep, never enough, not important? If you haven't really thought about it here's a quick exercise.  Have a think about the phrases you use in respect to money.  Or when your child asks for something what do you say?

"Money doesn't grow on trees"
"Money is the root of all evil"
"I don't get paid enough for that"

or is it something like

"Money provides opportunities"
"Money is easy to come by"
"You can have anything you like, with careful planning and budgeting"
"If you can save up half for that, I'll put in the other half"

To give our children a head start in their financial education, it is important that they can speak freely with you about money.  It is also important that they develop a positive attitude towards money.  But here's the trick:  If you have negative beliefs about money it will be difficult for you to teach your kids a positive attitude.  So here's an exercise that you can do.

Get the whole family together.  Turn off the TV, phones and computers and sit around the dinner table with some paper and coloured pencils.  Get everyone to write down some beliefs that they have about money.  Decide as a group whether these are positive or negative. Discuss how these beliefs affect how you handle money.  If your catchcry is something to the effect of, "We can't afford it" then you probably don't allow yourself to want anything because there is no possibility of ever being able to get it.  For your children's sake and your own, entertain the idea of turning this around at least to "How can we afford it?" if not to, "We can have this if we really want it" and do some brainstorming about how you as a whole family can earn more money for your purchase or at least save up for it from existing income.

Now write a new list together which contains only positive comments about money. These should be new beliefs that you'd like to have.  You don't have to believe them straight away.  Once you have a list of between five and ten new beliefs, put them up on the fridge for everyone to see and read daily.  Get used to saying these words instead of the negative ones.  Your children, creative beings that they are, should develop a positive outlook with regards to money and be on their way to learning to negotiate ways to get what they want, even if it seems impossible to you.  Try not to stifle this creativity by being a "realist".  Instead, foster their excitement and give them the responsibility for saving and budgeting.  They should quickly learn what purchases are important to them and temper their need for instant gratification.

Friday, July 20, 2012

How to teach your kids about money

This will be the first in what I hope will be a series of blog posts about how you can empower your children by giving them practical skills in money management.  Financial education for children is a passionate subject area of mine.  I believe that if money management is/was taught formally, much of the financial problems that people face in their daily lives could be avoided.  I heard a quote the other day which suggested that the poorest person in Australia is one of the richest people in the world.  If that is the case, we shouldn't all struggling so much just to make ends meet and we don't have to.

Children learn about the world from a very young age.  Everything you do and say is taken on board as they soak up knowledge.  Therefore I suggest that there is no minimum age in which you begin to teach your kids about money.  So here are some things that you can do starting right now, no matter how old your child is, to begin their positive financial education.

1. Be aware of what messages your are sending
Children learn from what you do, far more than they learn from what you say.  It is difficult to tell your child not to swear if you are using profanities in every sentence you utter.  It is the same with money.  You may not think that they know anything about your financial situation but they will pick up on subtleties that you don't even think about.  If you pull out your credit card for every purchase you make, they will know and subconsciously develop the opinion that this is a good thing to do.  If you ask for a receipt for every purchase you make and then check these against your bank statements every month, they will learn this as well.  Do they get the catch-cry, "Money doesn't grow on trees you know" when they ask for something or do they get taught value by identifying priorities for how and when they will spend their pocket money? If you don't know what ideas your children are getting about money, ask them (if they are able to talk), and be aware of what you are doing and saying in front of them.

2.  Discuss money with your kids
I know of some families who find it difficult to talk about money.  For some reason it is a taboo subject.  So when they have to discuss something, it's a strained conversation and often put off for too long.  Make money a subject that your children feel confident in discussing with you.  If they have a question about your financial situation, answer them truthfully instead of brushing them off with a half answer or a smart remark.

3. Find a way for them to model good habits
To learn the value of money, you really need to be handling it yourself.  Some people don't begin their financial education until they get their first job and then often they make huge mistakes and end up in trouble.  Trial and error is not the best way to learn money management.  I've also found that being told what to do can only take you so far.  Instead, show your kids some good money management by giving them some responsibility with money.  One way to do this is with pocket money.  The younger the child, the more important it is for the money to be tangible so give them cash.  If you want them to save it, don't put it in the bank for them so that they never see it, this teaches them nothing.  Instead give them two money boxes or jars to put it into.  Say that they represent different bank accounts and make one a savings account and the other a spending account.  Make sure that a minimum of 10% of their pocket money goes into the savings account and don't let them spend this on anything that does not make them money.  If they want to save for a consumable item, then a third jar might be necessary.  Your children will learn quite quickly how money can accumulate if saved regularly.  For older children, you might set up actual bank accounts but make them responsible for depositing the money themselves.  They can easily see how their money is growing by registering for internet banking.

I'll put up some more practical strategies for teaching money management to your children in subsequent posts.  In the meantime, check out my older posts for ideas and see if you and your children can work out a way to implement these strategies together.  If you have some strategies that work or you come up with some new ones, leave a comment so that other readers can also benefit from your creativity.

Thursday, July 12, 2012

Tax cuts and what to do with them

I heard a comment on the radio this morning about the new tax cuts for this financial year.   You may already know that in Australia this financial year, the tax-free threshold has tripled.  It was $6000 but now individuals can earn up to $18200 before having to pay any income tax. The other rates have been adjusted accordingly so that a person earning $80000 or more is taxed similarly to last year.  Everybody else gets a tax cut.  We also have money coming to us in the form of the Household Assistance Package and some people are also eligible for the Schoolkids Bonus.  The radio program also mentioned a decrease in petrol prices and interest rates.  All of this adds up to more disposable income for low-to-middle income earners.

I love that word "disposable", don't you?  It implies that we have money to literally "throw away".  And as much as we would disagree that this is the case, chances are, most of us will effectively do that - throw our money away - if we are not careful.  You see, without a working budget, the average person gets their wages, pays their bills and spends whatever is left over.  The fact that there is an extra amount (whether that be $5 or $50) doesn't change their spending habits.  People do not tend to purchase the same things they did before a payrise and then have the exact extra amount left over at the end of the week or month. "But what is it spent on?" I hear you ask.  Perhaps a small treat for getting the payrise, perhaps an unexpected expense such as new brakes on top of the car service.  Perhaps a new toy for the kids or something that you should have been saving for but have decided to charge to the credit card instead.  You wouldn't be able to trace the amount because your expenses vary each week anyway.  There is no conscious decision to spend $37 on something if you know you have an extra $37 in your pay packet.  In fact, the radio program I was listening to mentioned in increase in "Consumer Confidence" which sparked a debate about how this would have been measured.  They speculated that it might mean that people are spending more.  Wether this is the measurement or not, it is likely true that people are spending more money, since they evidently have more to spend.

So what can we do?  Well, it has been proven time and again that if you put money aside to save before the bills get paid and you follow your existing spending habits, then that money doesn't get spent with the rest.  I would suggest that we compare our wages and benefits and our estimated tax with previous  years and put some or all of the extra amount either into your savings or to pay off your debts.  Do this at the beginning of your pay cycle not at the end.  That way we'll be further along the road to financial freedom.  If you don't already have a savings plan in place then have a look at my post on  Saving 101 and Separate Bank Accounts to get some ideas on how to set one up.

Enjoy your extra "disposable" income.  Try not to throw it away.  But if you do, make sure it's a conscious decision and have fun with it.