By Ron Blue, Judy Blue, and Jeremy L. White

In a world bent on enticing children with the trendiest fashions, newest gadgets, and tastiest treats, how can mums and dads equip their children to survive financially? That’s a good question, especially in view of the fact that most family calendars don’t leave room for detailed discussions of money management. “Ain’t nobody got time for that!” Right?

Not necessarily. As a matter of fact, if you take your role as a parent seriously, you’ve probably already sensed that raising money-smart children is important. More than that, you probably know that, somehow or other, you’ve got to find or make the time to broach this subject with them before they’re old enough to launch out on their own.

We’re here to tell you that this can be easier – and a lot more fun – than you think.

Motivation: The Current Cultural Climate

Four powerful cultural trends support the idea you are vital to your child’s financial education:

• Most youths are financially illiterate. As a matter of fact, a recent Consumer Reports survey revealed that 28 percent of students did not know that credit cards are a form of borrowing, and 40 percent did not know that banks charge interest on loans.
• Advertisers and credit card companies are targeting children and teens. These professionals realise that contemporary children have more money and spending influence than at any time in recent memory.
• Most parents believe that someone else is teaching children about money and finances. Believe it or not, 80 percent of parents assume that schools are providing classes on money management and budgeting. This simply isn’t the case.
• Whether you like it or not, your children are looking to you for financial guidance. Surprisingly, 63 percent of older teenagers – children who are notorious for knowing it all and not listening to their parents – say that they get most of their information on money matters from mum and dad.

Add it all up, and you’ll have some idea of why it’s so crucial to start teaching your children about finances at the earliest opportunity.

Application: Putting Beliefs and Ideals to Work

The next seven things you will want to teach are more “hands-on” in nature – habits to ingrain and cultivate in your child’s daily behaviour rather than ideas to instil in his or her mind. Here they are, along with our suggestions for some fun and simple ways to put them into practice:

1) The Importance of Giving. You can teach the importance of giving by organising a family mission project. We don’t necessarily mean traipsing off to the jungle. Simply give your children contact with people who have more physical and economic needs than your family does. This could mean volunteering to serve in a soup kitchen or homeless shelter, getting involved with Habitat for Humanity, or sponsoring a needy child in another country through an organisation like World Vision or Compassion International.

2) The Rewards of Work. A good way to drive this point home is to hire your children to do tasks around the house. Even if they get a regular allowance, you can still give them an opportunity to earn extra money by working for it. Post a list of chores on your refrigerator or family bulletin board. Call it your “For Hire” list. Beside each job, include the amount to be paid for the work and how frequently it can be done – for example, scrubbing the toilet (once a week), cleaning out the store room (twice a year), or washing the car (as needed). Let your child know that paid labor is evaluated by inspecting his or her work after it’s done and reducing the pay if the quality of the work doesn’t meet your expectations. (Note: the ideal “chores for hire” are the occasional ones requiring extra effort, not the routine ones like clearing the table or making the bed.)

3) The Wisdom of Saving. There are several things you can do to help your children grow up to be savvy savers. The simplest is to buy them a piggy bank and encourage them to use it. You can also encourage them to open a “Home Savings Account” and pay them interest on the cash deposits they entrust to your safekeeping (you can call the interest a “reward for savings” if it makes things simpler).

4) The Necessity of Budgeting. Ron and Judy Blue’s Envelope System is one of the best tools around for teaching children how to budget. Here’s how it works. Beginning about age eight, give each child a recipe file box containing four letter-sized envelopes: a Save envelope, a Spend envelope, a Gifts envelope, and a Clothes envelope. In each envelope put the cash amount that you as parents have budgeted for the item in question for the current month. Then let the children have control and responsibility for the use of these funds. Some mums and dads might think of this as an allowance. In reality, you’re simply turning over certain areas of the family budget – items you’d be paying for anyway – to your child as a way of developing his or her financial skills. That’s the important point to bear in mind.

5) The Cost of Consumption. Identify an item that your children tend to waste money on – for example, candy, ice cream, or video games. Ask them how much the item costs. When they answer, say, “That’s how much it costs today. But what does it cost in terms of what you’re giving up?” When they look confused, help them calculate an average annual amount spent on their luxury – for example, RM2.00 per day, four days a week adds up to over RM400.00 per year. Now compare this to the alternative of saving that money. Let’s say your children buy a RM2.00 treat just once a week instead. They save the rest – which comes to about RM300.00 per year. Saving that money for forty years at a five percent interest rate will result in nearly RM40,000! Be sure to point out that about RM12,000.00 (RM300 times forty years) was actually saved. The other RM28,000.00 comes from compound interest.

6) Shopping Smart. Advertisers of cars, big-screen TVs, and mobile phones rarely mention the actual purchase price of the items they’re selling. Instead, they say, “Only RM399.90 per month.” Examine some of these ads with your children. Read the fine print to find out the total cost of the item and how many monthly payments would be required to complete the purchase. Compute the total amount of these payments and compare it with the price you’d be paying if you simply saved up your money and bought the car or TV for cash. Your children will be amazed at the difference.

7) Goal Setting. Has your child ever begged you to buy the latest toy or doll or electronic gadget? The next time this happens, turn the circumstance into an opportunity to teach long-term planning. Say something like, “Looks like it’s time to start saving your money.” Then help your child set a goal and use visual reminders to achieve it. You can do this by finding a picture of the item he wants to buy in a magazine or on a website. Print the picture or cut it out, then post it in a prominent place, preferably near your child’s piggy bank or wherever he keeps his money. You might even consider drawing a big thermometer on a poster board and having your child colour it in as the amount of money saved approaches the goal.

Excerpted from Your Kids Can Master Their Money, published by Tyndale House Publishers. Copyright © 2006, Ron and Judy Blue, Jeremy White. All rights reserved. International copyright secured. Used by permission.