Table of Contents

Cover

Title Page

Copyright

Also by Andrew Lendnal

Dedication

Introduction

Lesson 1: The sooner you start, the less scary it will be

Lesson 2: The value of values

Lesson 3: Breaking the materialism trap

Lesson 4: Ready, set goals!

Lesson 5: The traditional piggy bank is technically flawed

Lesson 6: Allowances

Lesson 7: Work isn’t a dirty word

Lesson 8: Your child doesn’t like to save?

Lesson 9: Laughing all the way to the bank

Lesson 10: Money makes the world go round

Lesson 11: ‘I want what I want’

Lesson 12: Let the buyer beware!

Lesson 13: The hot stove principle

Lesson 14: Sharing is caring

Lesson 15: Monkey see, monkey do

Teens and money

A word to parents

Your child’s fl ying start: Australia

Your child’s fl ying start: New Zealand

Final Word

Jargon busters

Useful websites

Bibliography

Back Cover Material

Also by Andrew Lendnal:
Budget Wise, Dollar Rich, with Anton Nadilo (Exisle Publishing)
Money Smart: children’s picture book and audio book
Saving with Simon and Sue: children’s picture book and audio book
The Camelot Way to Build and Protect your Financial Happiness
For more information on this book, visit:
www.goldstart.com.au or www.goldstart.co.nz

This book is dedicated with love to the memory of my late beloved mother.
Thank you for believing in me and always being there for me.

Sidenote 1

Introduction

Help me save my children from becoming victims of Generation Debt

You’ve done your best to raise loving, sensitive, talented, compassionate children. That’s why you have picked up this book. They mean the world to you but, unfortunately, you feel you may not have done a great job of teaching them about money. And the last thing you want is to create further victims of Generation Debt – a term coined by author Anya Kamenetz (and the title of her first book).

Today’s twenty-something generation tends to be made up of highly educated individuals who are often mired in unmanageable debt – credit cards, car and student loans. In Europe they’re known as the ‘1000-Euro Generation’, a moniker credited to an Italian internet novel. This generation doesn’t understand a lot about money, but does like to spend it. The result can be tens of thousands of dollars in debt that won’t go away.

It doesn’t take long for the typical university student, persuaded on-campus to sign up for that first credit card, to max it out and sign up for a few more cards, using them to buy clothes and university course requirements.

When the debt catches up with these students, they take out student loans to pay it off and help make ends meet. By the time they leave university they’re in a hole $20,000 deep. That doesn’t stop them from taking out another ten (or 20) grand to buy a car.

A decade later, at 30, they’re still chipping away at their $30,000 tab. Although they’re saddled with debt and there’s no end in sight, they’re not losing any sleep over it. They find it hard to save and are frequently tempted by nice clothes and the latest technology. They see this penchant for living beyond their means as a mark of their generation, one made up of those who will drop $4 on a coffee without a second thought and who pride themselves on having the latest gadgets.

Our grandparents understood the value of a dollar. They stashed coins in piggy banks and contributed to their savings accounts. That was before credit cards, and when borrowing money to buy a car was out of the question. What happened to that old-fashioned virtue, thrift? We’ve taken the notion of living beyond our means to a whole new level, as we continue to live with debt and no savings.

Spending is no longer keeping up with the Joneses; now it’s keeping up with the Hiltons.
(Matt Murray, executive director of the American Association of Young People)

Tertiary students may grow up with the illusion of a level playing field, but after they’ve finished their studies, there are those with $50,000 in loans and those without. This is a generation hugely divided. Unlike the baby-boomers, these young adults don’t have a collective feeling. They face a series of economic and social issues their parents and grandparents never encountered. Sixty per cent of student aid is in the form of loans and the national average student loan in Australia is over A$22,000; in New Zealand it is nearly NZ$20,000. Taking out a student loan is now a rite of passage.

Credit cards, too, act as safety nets for tertiary students. Many give themselves an unwelcome graduation present – an average of $3000 in credit card debt at the time they receive a degree.

All this because we live in a financially illiterate culture where the financial crises of inexperienced spenders are regarded as simple mistakes! But there’s no easy answer, no one-stop shop, crash diet or training regime to make you and your children fiscally fit.

We’re not doing well with regard to money management. While some of the debt issues faced by younger generations can be addressed by more responsible money handling, a larger part of the problem lies in our ever-changing economy, and the urgent need for economic reform.

Learning the hard way

Here are some comments from parents, made with the benefit of hindsight.

I wish I’d made my son get a job

Let me start by saying that my son has been involved in sport since he was very young. What that means in regard to money management is that it’s hard to work when you are constantly practising. I made a deal with him very early on that I would not give him any money; he would have to earn that himself. He did come up with a few entrepreneurial stints over the years, as a bush lawyer at high school and making custom CDs before the whole music downloading thing blew up. He once spent two weeks mowing lawns, which taught him the value of getting an education. For the most part, though, he didn’t work. I wish I had made him get a regular job, even if it was only a few hours a week, because he would have acquired a work ethic.

My son is now in his final year of university and I’ve finally insisted. I asked him, at 21 with absolutely no work experience, who did he think would hire him when he graduated and was waiting to be picked up by a professional rugby team. It’s going to take a top Japanese club a while to find him and, in the meantime, he will be competing for entry-level jobs with other 22-year-olds who’ve been working since they were 15 or 16.

So now he’s working in his first regular job, as a delivery boy for Pizza Hut. What do you know? He likes working! He has learned about the anxiety of the first day on a new job and how that is survivable; he has learned about tax being deducted from his pay and, most of all, he has learned that he has to go to work in order to support his lifestyle – and because the other people who work there are counting on him. For these and lots of other reasons, I wish I had made my son get a job as soon as he was old enough to work.

I wish I’d insisted that my daughter save some of her money

When my daughter was small and doing occasional odd jobs, I did make her save some of her money. But I never set up a hard-and-fast rule about saving a certain percentage of her earnings. Now she doesn’t have that habit and will have to figure it out on her own.

I wish I’d taught my son to budget

Along with not saving his money, my son doesn’t know about budgeting. He is in his first year of flatting. I am paying half his rent and nothing else. Unlike the flat he had last year, he is also responsible for power bills. Last year he was forced to learn a little about budgeting when he had to start buying his own groceries. I know these are real-life lessons that we all learn at some point, but I wish I had better prepared him. On the brighter side, at least he is learning them now before he really gets out on his own!

I wish I’d insisted my daughter give a portion of her money to charity

I love the idea of giving a small child a dollar and then making her give some of it to someone who needs it more. I love the idea of taking my children to volunteer at the food bank or help out at the local SPCA. I never did any of that and I wish I had.

I wish I’d taught my son to manage his money

When my son was first going off to university I realised that, never having had a cheque account, he probably didn’t really know how to use one. I was right! Before he left I sat him down and made him balance my cheque book. That was an experience for him. Among other things, he learned Mum isn’t actually made of money! It was a good lesson for him but I wish I had started sooner. He duly opened a cheque account when he first went off to university. He no longer has one. I don’t know why, but I suspect he got into some trouble with it and his debit card. Another lesson learned!

I wish I’d talked with my daughter about the dangers of credit cards

I don’t know if she has a credit card. I know she is inundated with offers. If she does, her ability to manage it will not have come from anything I ever taught her because I don’t believe we ever talked about it.

Do you pass the financially savvy parent test?

I was raised to believe that you don’t talk about money, and I’m not sure if the financial bumps in my life would have been smoothed out at all if my parents had discussed money management with me. But I would have had a better understanding, at an earlier age, of how it all works.

So, after you’ve read about the regrets some parents have, are you ready to involve your children actively in day-to-day financial dealings? The purpose of this book is to help prevent your children getting to the point of major indebtedness by making them fluent in finance and providing you with the necessary tools to pass on the four basic principles of money management – earning, saving, spending and sharing.

It’s important to teach money basics at an early age. Getting in front of the behaviour before it has a chance to set is the recipe for creating a society of financially literate adults.

Financially savvy parents know how to emphasise healthy, positive money behaviours that communicate strong values to their children. They also know how to minimise negative money behaviours that send the wrong messages. They are able to identify teachable times that help them talk to their children about money, answer their questions and teach them to reflect on financial decisions.

As a financially savvy parent, you understand that money is in itself neither good nor bad; it’s what you do with it and what you teach your children about it that is important.

By answering the following questions correctly, either ‘Yes’ or ‘No’, you will find out if you are a financially savvy parent:

1. Do you have unresolved issues around money, i.e. do you spend too much, or do you have difficulty spending money at all? Have you made poor investments? Do you have difficulty saving money?
2. Do you have goals and a plan to educate your children about financial matters?
3. Do you think about the values you’re communicating to your children through your money behaviours?
4. Are you uncomfortable talking about money with your children?
5. If your children ask for something you don’t want to buy because you think it’s too expensive, poorly made or they already have enough, do you take the time and effort to explain why you’re saying no?
6. Do you sometimes use money as a bribe?
7. If you feel you’ve been too busy to spend time with your children, do you try to make it up to them by buying them things?
8. Do you and your spouse often argue about money in front of your children?
9. Do your children go to the other parent when they don’t get an answer they want?
10. Do you ever talk to your children about the importance of charity and helping others less fortunate than your family? Do you help your children get involved in charitable activities?
11. Do you give your children a consistent allowance?
12. Do you think it’s important to have a healthy relationship with money?

You may not have given much thought to the issues raised by this questionnaire; financially savvy parenting isn’t an inbuilt skill. Our own parents’ money issues, combined with societal attitudes, shape our money beliefs and behaviours, and they haven’t always been shaped in ways that benefit our children.

If you gave the right answers to these questions, you’re on your way to becoming a financially savvy parent. If you didn’t, then the lessons outlined in this book are here to help you and your family. The correct answers are: 1. No; 2. Yes; 3. Yes; 4. No; 5. Yes; 6. No; 7. No; 8. No; 9. No; 10. Yes; 11. Yes; 12. Yes.

Rules of engagement – the war against debt

Here are some strategies that may help you win the battle:

  • Speak with your spouse or partner first so that you’ll both be on the same page when it’s time to talk to the children about financial priorities.
  • Put yourself in your children’s shoes; try to remember what your top financial concerns and priorities were at that age.
  • Next, ask them about their thoughts on money. It’ll show you’re interested in their opinion and help to make conversations about money more productive.

Everyone needs to understand about money: where it comes from, how to spend it wisely, how to save and invest for the future – and don’t forget the principle of giving. Too many parents don’t take the time to teach their children about the values of money and, unfortunately, many of those children grow up to be adults who struggle with basic money management skills.

The benefits of teaching children good money habits make it well worth the effort. Children who aren’t taught these lessons suffer the consequences for a lifetime. Some parents don’t teach children about money because they see it as a taboo subject, don’t have the time or think they don’t have enough money to make it worthwhile discussing. Parents should take the time to teach children about money regardless of income, and they should start when the children are young.

This process needs to begin preferably before children reach school age, and certainly before their teen years. This book contains some helpful guidelines and suggestions. It provides a general background and outlines by age-group and stage of development children’s understanding and use of money, as well as conflicts about money. It also identifies activities you can use to teach your child about money.

Most people have strong feelings and opinions about money, based on childhood experiences and the values and beliefs of their families. Usually these experiences, values and beliefs differ between parents. It’s vital for the healthy development of children that parents talk about these feelings and opinions, and establish a consistent approach to teaching children about money.

These questions can help you focus your discussion:

  • How do we create an open environment to discuss money issues?
  • How should our children receive money?
  • What are our family values and attitudes about money?
  • What should we tell our children about money?
  • How should we use everyday examples to teach money skills?
  • How will we deal with our children’s differences in handling money?
  • How will we respond to the effects of advertising and peer pressure on our children?

Keep these questions in mind as you begin socialising your children financially.

How do children learn about money?

Children learn about money from their parents. They watch their parents spend or save money every day (observation). They also hear their parents talk about money, either directly or indirectly (talking it over). And children learn about money by using it themselves (learning by doing).

Observation

Children see what their parents and other adults do with money and they start to understand how their parents feel about it. In turn, this influences their own feelings about money. Do the parents spend all their money before it’s earned? If so, this may make it hard to teach children about limited resources, planning for spending and the value of saving. Or do the parents save every cent they earn? This may make it hard for children to see that money is a tool, not a goal in and of itself, and can make it difficult for children to spend even for necessities.

Talking it over

It is important to discuss the family’s financial situation with children at a level appropriate for their age. Encourage children to participate in family financial discussions. Communicate about money one-on-one as the opportunity comes up. For example, your daughter wants to buy a digital camera. You tell her that you can’t afford it. Then the next week you buy a new car. What does your daughter think? Help her understand why it’s important to have the car to drive to work and why that need must come before buying her a digital camera.

When talking about money and saving with children, encourage them to set realistic goals for the near future. Saving money for that new digital camera is more realistic than saving for retirement at the daughter’s age. Remember children live in the present.

Also, be reassuring when talking to children about money. If they discover the house they live in is not completely paid for, they may worry. Assure them the family is able to make the monthly payments and they won’t be out in the street by morning.

Learning by doing

The best way children learn is by doing. This book provides you with numerous useful tools and activities to reinforce the lessons you are about to learn on your journey to becoming a financially savvy parent. Choose the activities that are appropriate for the child’s age and current interests.

Remember, money gives people – both young and old – decision-making opportunities. Educating, motivating and empowering children to become regular savers and investors will enable them to keep more of the money they earn, and to do more with the money they spend. Everyday spending decisions can have a far more negative impact on children’s financial futures than any investment decisions they may ever make. To ensure that your children will be financially literate adults, you are about to be introduced to 15 simple lessons you’ll wish your parents and teachers had taught you about money when you were young.

Lesson 1

The sooner you start, the less scary it will be

Start early to raise financially responsible adults

When your child is old enough to start asking, ‘Buy me this’ or ‘Buy me that’, it’s time to start talking to them about money. Up till now they didn’t ask, and you bought them what they needed. Now they’re starting to express wants and needs of their own. We all want to give our children the best, but how do we draw a line under what they should ask for, and what they should get?

Before children start asking for things they’re not ready to understand the concept of money. But once they have personal wants – a toy, some McDonald’s, new clothes or wanting you to take them somewhere that costs money – it’s time to start talking to them about money. The first thing you need to discuss with them is that things are not free, that when you buy them something, or take them where there’s an entry fee, it costs money.

The benefits of teaching your children about money early on are both immediate and long term. In the short term you’ll help them develop saving habits, learn how to make smart purchases, begin to understand the meaning of ‘investment’ and perhaps even learn why they can’t have everything they want straight away. In the long term, you can help them avoid accumulating debt. And by teaching the value of saving for the future you can help them plan for financial security.

If you can show a young child what to do with her money as soon as she knows what money is, she’ll develop habits that will serve her well throughout her life. This is the first step to learning how to earn, save, spend and share effectively.

We must help our children learn to compartmentalise, i.e. to manage money. Otherwise, they’ll get into the habit of regarding their allowance as a licence to buy movie tickets, toys, music and clothes. That’s not a realistic view. As adults, if they treat their pay the way they’ve treated their allowance, they’ll be in real trouble.

As soon as your children can count, or grasp the transaction involved in buying sweets, they’re ready for an explanation about money. Whatever their age, you can help your children both by giving advice, direct and indirect, and by setting a good example. Let them use money. Provide opportunities to start using money early on, but give them small amounts so their mistakes won’t be too costly.

What they should know and when

To ensure your children are on-track, you need to be aware of the stages at which each child’s financial growth takes place. Remember, children are unique individuals who develop at their own rate but all of them, as they grow older, must be included to an ever greater extent in discussions of limits and consequences.

Table 1
Three to five: it’s never too early to turn them into junior tycoons

I don’t really recommend that you get serious with your toddler about the share market, but there are some simple games you can play that will entertain your child while building a basic understanding of money. For example:

  • Try playing shopkeeper. Have your child price items with coloured stickers and use play-money to buy them. Keep the sales revenue in a bank. Switch roles – shopkeeper and shopper – with your child.
  • Let your children handle supermarket coupons, matching them with the appropriate items (let them keep the savings). Explain your choices as you shop – how sale items are cheaper, and why bigger sizes are a better deal.
  • Talk to them about coins and notes, and help them start to understand that the different sizes are worth different amounts. Then offer to trade them your 10-cent coins for their 50-cent coins.
Six to eight: it’s allowance time

It’s a good idea to give your children a monthly allowance (monthly so they have to plan ahead). At this age, children can begin to estimate the cost of purchases and figure out how to get correct change.

Test them by handing them some money and letting them count it. Or let them pay for the burgers and fries. If they bring back the correct change, let them keep it (assuming you didn’t give them a fifty). Teach them about value by letting them buy a bargain brand of juice, then compare the taste with the brand they’re used to. Don’t forget to point out the money they saved. Make a game of looking at price tags for markdowns and sale items.

Setting limits

We all have to live within our means. One way to instil some discipline about spending is to set a limit on what you’re willing to spend on clothing (or other common expenses). If your children want something more expensive, they have to make up the difference.

Nine to 12: big eyes, small wallets

At this age, it’s appropriate for your children to start earning extra money in order to supplement their allowance. And some pre-teens develop an interest in investing. Hey, you could be raising the next Bill Gates. If so, encourage that interest. Children this age also start to want a lot of stuff. So the next time your child says, ‘Why can’t I buy it?’ try this. Count out your pay in cash. Separate the notes into stacks that represent food, rent, power, savings etc. Show your child in graphic detail why you’re not made of money.

Borrowing may start to become an issue. Go ahead. Lend your child money, but make a point of charging interest. Finding out how much it costs to borrow money is an important lesson to learn. At the very least, have your child do odd jobs around the house to pay off the loan.

There are several more things you can do to help your pre-teen learn about money and its value in the world:

  • Set short-term goals and save toward them.
  • Make deposits in a savings account. Don’t bother teaching them how to withdraw the money. That’s usually an inherited trait.
  • Show them how to comparison shop, and wait for sales.
  • Set long-term goals so they experience the thrill of actually achieving those goals (you might learn something too).
Show them the money!

You can use money to teach:

Maths skills Using money involves using different maths skills like adding, subtracting, matching and sorting. A child will learn how money ‘works’, and how best to use it in stages, depending on age and experience. As a parent, you can help your child learn to use money and develop useful skills.

Saving habits Saving is an important part of learning how to manage money. Many children learn about saving by having piggy banks. Saving money can help children learn how to plan, develop patience and learn how to delay gratification. So whether you give your child an allowance, or money for doing something in particular, this is a good way to work with him on saving.

Making choices Using money involves making choices. You start with a certain amount of money and you make choices on how to spend it. When shopping, let your child observe how you make choices. Explain briefly why you decided on brand A versus brand B. ‘I could either buy this soap which smells good, or buy these two soaps which are on sale and will save me money.’


Allow your child to choose items sometimes when you are out shopping together. Offer a choice of two items that you find acceptable, and then allow her to choose one of them.

Community skills Saving and sharing money can be used as part of a lesson in reaching a shared goal. It is also a good way to promote working with others. For example, allow your child to share in helping with a favourite charity, a family activity, or a community project. Allow an older child to help decide what kind of charity or project you want to work on as a family. If money is needed for the project, let your child contribute and decide how that money is to be used.

Social skills Using money involves many social skills and interactions with others. From speaking with salespeople to the social rules that go with making a purchase, practising social skills is part of using money in everyday life.


Research has shown that a child with positive social skills is more likely to succeed in school and in life. Some children need a lot of help to develop these skills. Research also shows that a child who isn’t able to interact positively with others tends to be unable to make and keep friends, and may have behavioural problems at school.

Talking with your children at an early age about money and saving is important. You can help them form positive lifelong skills around money. This also involves learning and using other important life skills as well.

No matter what your financial circumstances or personal beliefs, you can help your child become ‘money-smart’ and learn to use the money system to his or her advantage.
Table 2
What about tweens (12 to 14)?

Skills Used/Learned

When they reach their teens, children get serious about independence. They want to do what they want to do, and they’d appreciate it if you’d leave them alone. But they are also perfectly willing to spend your money – as long as you don’t ask them what they’re buying. What is a parent to do? This subject is covered in greater depth in a separate chapter (‘Teens and money’).

No matter what changes your teenager goes through, this is not the time to berate them for their choices or, even worse, compare them unfavourably with the model teen down the street. Instead, continue to be an example, to be available, and to transition into the role of friend. Very soon teenagers will leave home and need to be capable of standing on their own two feet; hence their personal leadership and team-building skills must have been developed. In addition, this will be the test of your success in educating them in financial matters...