The importance of talking money to our kids

This article won't answer specific questions about finance, but it will give you some ideas for teaching your children the value of money and savings.

Financial literacy is the "process by which financial consumers/investors

• improve their understanding of financial products, concepts and risks and,
• through information, instruction or objective advice, develop the skills and confidence
  • to become more aware of financial risks and opportunities,
  • to make informed decisions,
  • to know where to go for help and
  • to take other effective actions to improve their financial well-being." (Source: OECD Council, June 2005)

Even though the definition above was only for consumers/investors, financial literacy is for everyone.

When it comes to money, here's an idea of what to teach your kids and when:

• small children: what money is and what it's worth;
• pre-teens (ages 7-12): how to manage their allowance and save for a specific goal (e.g. a bicycle);
• teens (ages 13-18): how to make their first financial decisions (e.g. buying a mobile phone), and about budgets, income, expenses and savings;
• young adults (ages 19 and up): how to finance their education, pay rent on their first place, pay bills and "household" expenses, etc.

We don't talk about money!

Money is a taboo subject in conversation, and talking about money or your personal finances is often frowned upon.

But it's an important topic, and we need to talk about money, especially with our families.

Households have fixed monthly income and expenses, and knowing how much we have available is critical.

Explaining to your children that certain expenses are simply impossible will teach them financial skills they will use over the course of their lives.

The amount of pocket money you give to your child obviously depends on its age and your personal circumstances.

Pocket money is an excellent tool for teaching them how to manage their expenses. Let’s say child daughter gets EUR X of pocket money per week, depending on its age. If she has to use that money to pay for her favourite magazine, trips to the cinema, gifts for her friends, etc.,

She’ll learn to manage a given amount of money by herself.

In Greg McKeown's book, Effortless, he explains how he and his wife gave their children the chance to waste some of their money. It’s important to learn this when you're young and the stakes are still low.

The kids got three jars each – one for charity, one for savings and one for expenses. When they got their allowance, they were free to divide the money between the three jars. Their parents stayed neutral and didn't give them any advice.

The kids were free to make their own “financial” decisions – for better or for worse.

Their eight-year-old son spent EUR 40 on an electric car, but was disappointed in his purchase and regretted it immediately. He should have saved it for his real dream, which was bigger and more expensive – a new bicycle.

Later on, as a teenager, he had already learned how to save a large sum of money for a specific goal, a trip worth several thousand euros.

How can a pre-teen, teen or young adult save EUR 1.378 in a year?

Check out the 52-week savings challenge and make it an epic goal for the new year!

Get a nice piggy bank and save every week.

For week one, put in EUR 1. For week two, put in EUR 2, and keep going until week 52, when you’ll put in EUR 52.

EUR 1 + 2 + 3 + … + 51 + 52 equals EUR 1.378, a healthy sum for a young person to either put in a savings account, or to spend all or some of to make a dream come true.