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Starting From Young: Instil Desire To Save, Not Urge To Spend

As all parents know, the temptation to spoil children is strong. But while the occasional treat is only natural, financial experts say there are far-reaching benefits from teaching children good money habits.
Children who grow up without learning the real value of money very often pay the consequences later in life because they are unable to manage their finances.

Bad money habits can lead to dire money problems such as bankruptcy. And the woes can extend beyond the bank balance, leading to emotional problems such as low self-esteem and relationship issues. In the United States, more people go bankrupt each year than graduate from university and, of those who do graduate, many axe in heavy debt. Six out of 10 young adults there have consumer debts of up to US$25,000 when they graduate. 

They are cases of some young adults who still receive some form of financial help from their parents. These are not cases of parents helping their children to make ends meet during a cash crunch. In most instances, the handouts are routine simply helping the children to maintain a lifestyle they cannot afford themselves but one to which they have become accustomed.

For example, Miss Lesley, 24, admitted she could get by on her $2,000 salary as a pupil at a law firm if she made some drastic changes to her lifestyle. However, help from her parents makes life a lot easier. Every month, her parents fork out $340 for Ms Lesley's parking fees. They have also funded some of her more extravagant shopping purchases, such as a $3,000 Chapel handbag and a pair of $600 Ferragamo shoes.

Other parents say they still pick up the tab for their working children's mobile phone bills and car loans, while some dish out monthly allowances even when their children are earning their own salary. Experts warned about the dangers of spoiling children. Overindulging your kids will not foster their love for you; instead it will encourage them to become weak and helpless adults.

You might not see the effects immediately, but the consequences of over-indulgence will become apparent over the long term when the children grow up and need to succeed on their own. If they've been indulged throughout their childhood, it's likely that their motivation to work hard and overcome the obstacles that adult life inevitably throws in their way will have been undermined, if not destroyed,.

Fostering The Saving Habit Early

Financial experts say it is never too early to start educating children about the different ways they can save money given to them.
In fact, teaching them the value of saving is a good way to start their financial education. Experts believes laying the foundation for a young person's financial education in his formative years will help ensure that he grows up to make well-informed financial decisions.

And of course, modern life places extra demands on kids. They are targets for advertisers hawking everything from clothes to video games and junk food. The message they receive all the time is "spend". For children who are 12 or below, the most important lesson is to instil a savings discipline - emphasising the importance of saving and the practical ways they can go about saving, according to experts.

The key is to start small and progress to larger goals over time. By encouraging children to save for a few months before they purchase a special toy, you teach them the virtue of patience and how to delay gratification. Experts feels starting children on a weekly or monthly allowance helps them put what they are taught into action. The child will learn first-hand how to fulfil his or her needs and wants within the allowance given. Teach them how to allocate their spending money - save for wants, save for donation and investment (rainy days). It will also teach them to delay gratification in meeting their wants, especially if they have not saved enough for the item they want.

Experts stresses the importance of instilling a desire to save, rather than an urge to spend. To help the child adopt the "save first" principle, experts suggests setting aside a portion of his allowance for his savings account; his parents can match the money saved.
Surveys have shown that most adults who are dogged by debt problems have poor money management. skills and that bad credit card spending practices are a major culprit.

Therefore, it is never too early to teach children about the wise usage of credit cards, said experts. Children can quickly relate to this simple analogy. Ask them this question: When you put money in a savings account with a bank, what kind of interest rate do you earn? This is the sum you get when someone else uses your money. On the flip side, if you cannot pay your credit card bills, what kind of interest rate do you have to pay the bank? This is the sum you need to pay to use someone's else's money.

Guide To Kids And Money

Preschoolers (Four To Six Years Old)

  • Separate coins into piles and discuss their value.
  • Let them pay for a few items when you go shopping.
  • Give them a piggy bank and encourage them to put gifts of money into it.

Early Elementary (Seven To Nine Years)

  • Open a savings account for children.
  • Compare prices while shopping.
  • Teach the difference between needs and wants.

Middle Elementary (10 To !2 Years)

  • Give an allowance for their daily use and apportion savings and spending.
  • Plan to share the cost of an item they cannot afford from their savings.

Early Teens (13 To 15 Years)

  • Help them understand the use of cash and the dangers of credit.
  • Encourage planned savings for a particular item and regular savings for emergencies.

Middle/Late Teens (16 To 18 Years)

  • Involve them in getting information for a long-term financing arrangement.
  • Start educating about investing and the various types of financial products.

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