Lifting financial literacy falls increasingly on parents

Lifting financial literacy falls increasingly on parents

Pocket money for kids could be their gateway to greater financial freedom and more Kiwi families need to reinstigate the age-old practice, says financial adviser Michael Cave, Managing Director of Cave Financial.

His comments come as the Commission for Financial Capability looks to deliver a $10 million 'Sorted Schools’ programme to teach kids about money.

“It’s great that a financial literacy programme will be rolled out in some of our schools, but that’s no reason for parents to relax. When it comes to improving our country’s poor financial literacy levels, the responsibility remains on parents first and foremost,” says Mr Cave.

The father of four children aged three to 12 years old says it’s never too early to teach kids the value of money, particularly when experts say people have formed their future money habits by the age of seven. So, by giving kids the tools while they’re growing up will only help them to manage their finances in adulthood and potentially save them from unsustainable debt later in life.

Parents overseeing a meaningful pocket money arrangement from the outset are key, he says.

“The main thing to avoid is giving pocket money as a fixed entitlement with absolutely no strings attached. Kids need to know why they are getting it and have plenty of opportunity to maximise it.”

For his own children, Mr Cave devised a system that paid them a bonus if they finished a particular job within deadline. He says an incentive to earn more than the usual flat fee will spark a lot of kids into action. Likewise, a roster on the fridge outlining household chores can be a central focus but it’s important not to turn it into boot camp.

“You’ve got to make sure your kids enjoy the journey and feel an important and valued part of the household along the way. As we all know people will learn more if they’re also enjoying the experience.

“Kids soon click that work is not only about making their room look better, but it can also deliver monetary rewards. From there they will start associating a good work ethic with financial gain. Then most are right into it.”

What’s more the financial adviser says parents should encourage kids to be creative, innovative and entrepreneurial in the process.

"The kids can sell fruit to the neighbours and friends and if you don’t have a fruit tree, the kids can plant one and reap the rewards. The learning process is important. Likewise, kids can make or find things to sell on the likes of Facebook or Trademe.”

Mr Cave said growing up on a Gisborne farm, he would bag up sheep manure from under the woolshed to sell to his parents’ gardening friends. Another task was to feed the farm dogs, a job he charged his parents a little more for when it was raining!

He says for very young children it’s often about having a small purse or piggy bank with shiny coins in it. If they want a toy, then that’s your opportunity to begin making the connection between money and what it can buy. At the same time, you can teach them that coins are valuable and need to be kept in a safe place.

Whereas for older children, you can introduce concepts such as hourly rates where they can negotiate a bit with you. Parents should also take the time to show them how online banking works, and what interest rate their savings will earn.

“As kids get older they love apps so find them a savings one that makes it interesting and fun such as Pocketsmith or Rooster Money. Help them set some goals so they can work out the amount they need to save every week to get there.”

He has seen his older children stop impulse spending behaviour because they are watching their savings increase within the app, getting ever closer to their savings goals.

Mr Cave says while having kids save some of their pocket money is an important part of the equation, so too is spending, as is giving to charity.

“Pocket money can also be a very good mechanism to help instil a sense of community. Kids should be encouraged to look outside their own needs and consider a charity or cause they could make small donations to. They’ll get a lot of satisfaction from being generous to others who need it.”

Mr Cave said weekly instalments of pocket money may work well for younger kids. However, as they get older, the next important lesson is how to budget. That's when it's a good idea to stretch out the pocket money payday to once a fortnight. For older teens, you might even want to go to a monthly allowance which will really test their budgeting skills.

“When it comes to money, delayed gratification is something our grandparents knew a lot about, whereas instant gratification is what millennials are often more associated with. The reality is every generation lives in a somewhat different world and we can learn from the positives of each.”

He says regardless of different generational expectations and practices some things never change.

“When it comes to money skills the greatest lesson we can give our kids is to reinforce that in life nothing is for free. Money comes from hard work and being careful – not just out of a wall!”

Michael Cave says if people don’t learn about the value of money and its basic management when they’re young, they’ll be a lot more susceptible to the likes of crippling credit debt and car loans. And as they get older “the numbers just keep getting bigger and bigger.”

“The role of parents in teaching children good money skills is arguably more important now than ever before when you consider all the easy credit that’s available, together with all the expectation, pressure and choice people face,” he says.
www.cavefinancial.co.nz
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