Many Malaysians grew up in families where it wasn’t polite or common to talk about money. Many Malaysians have credit card debt and repayments on PTPTN education loans. Over 300,000 bankruptcy cases were filed last year.
So how can you raise kids who are financially savvy?
Start them young
Most financial experts agree that children have a basic understanding of money at three years old. And financial habits are mainly formed by the age of seven, according to a University of Cambridge study.
For toddlers, a reward system that consists of a favourite television show or a tasty treat can help them learn the concepts of money early on.
For example, when your toddler displays good behaviour, give them a homemade coupon.
You can attach the value of a small treat for one coupon and a greater reward for three to five coupons. In this way, your child will start learning about saving, spending and delayed gratification.
As your toddler grows, play “store” to introduce the concepts of trading money for things (just play with items you’ve collected from around the house). If you play with coins this would be a great time to help your child recognise the different values of the different coins.
An allowance is one of the best ways to teach your child to manage their finances well. Giving them an allowance on a regular schedule will help them learn management lessons.
When deciding the amount, consider their age, your family income and what their allowance is meant to cover.
As soon as your kids start receiving an allowance, teach them to budget by providing them a breakdown of where their money goes.
For example, 40% allocated for spending, 40% for savings, 10% to charity and 10% towards family taxes.
For younger kids, provide their allowance in small denominations for easy allocation and save them in separately labeled clear jars or plastic bins so they can watch their money grow in each category.
As soon as you think they are ready – probably between ages six and nine – open up a savings account in their name. This is also a great opportunity to discuss the concept of interest.
When your child is a teen, take them to open a checking account so that they can learn to responsibly use their debit card before leaving home.
A savings chart is a great tool for kids of all ages. When your child has a savings goal, whether that be a new toy or a car, create a chart with a picture of the desired item at the top.
Then, for younger kids, figure out how many weeks of allowance it will take to buy it and draw a box for each week. The child can then fill in the box with a marker or sticker when the money for that week is saved.
They will feel so proud of themselves when that item is theirs and they bought it with their own money.
For older kids, this may be a separate savings account that they deposit allowance and/or earnings into to reach their goal.
Teach your kids the value of making thoughtful purchases by allowing them to buy the luxuries they want. For example, keep food in the house so your kids can pack their own lunches, but if they want to buy food at school, then they pay for it themselves.
It could save you money, help your kids to be thoughtful about what they spend their money on, and likely ensure they eat healthier foods than what the school provides.
Kids don’t usually understand the cost of things aside from the sticker price, so it’s up to you to teach your kids about less obvious (or even hidden costs).
If your older kids want to make a big purchase like an iPhone or a car, teach them about the added expenses of monthly data plans, repairs, etc.
When it comes to spending, your kids are going to make mistakes, and that’s okay. They will likely experience buyer’s remorse at some point and may turn to you for help.
If this happens, compassionately let them experience the consequences of their actions, particularly if you warned them before they made the purchase. The pain they experience now will help them make better choices when the stakes are higher.
Learning personal finance concepts
Remember when you were working your first job and you were so excited to get your first paycheck? You’d worked hard for that money and probably already spent it in your head a dozen times. Then when that day came, you were shocked by how much smaller it was than you thought – because of taxes.
Issuing a “family tax” will creatively teach your kids about taxes from an early age. For example, you can use a tax of 25% or one-fourth of all income. Later, use this tax revenue to do fun things as a family.
Increase your teen’s investing savvy (perhaps your own as well) by allowing them to choose one company (or a few) that they know of and think are “good investments” and pretend to invest a specific amount in these. Follow the activity on the market together and see how you do.
Much like the family taxes example, you can teach your older kids powerful lessons about debt and credit now, too. If there is something they really want, give them three options:
- Buy it now.
- Save to be able to buy later.
- Borrow the money from you with an interest rate attached.
Teach them that if they are going to borrow money it will cost them – and the longer they wait to pay it back the more it costs. Set up the rules of borrowing in advance.
Mind your language
Rather than saying “we can’t afford it” or even, “it’s not in the budget,” try saying “we’re choosing to not spend our money on that right now.” Talk to your kids when you decide not to spend money on something and be open about why you chose not to spend.
Particularly with young kids, teach delayed gratification by associating today’s “no” with tomorrow’s “yes”.
For example, if you say no to a dinner out or a movie in the theatre, explain that you’re not spending money on those things because we’re going to put that money toward an upcoming vacation.
And, when your child asks a challenging question, try responding with, “Why do you ask?” This will help you understand their line of thinking behind the question before responding.
Tony Robbins is the world authority on leadership psychology and the No 1 Life and Business Strategist. This article appeared in https://mypf.my while the original version was published on TonyRobbins.com.
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