THE BASIS OF SAVING OR MAKING MONEY:
Delayed gratification is THE first law of personal finance, Bruce says. That is - If you don’t spend it now, you can create more of it to spend later.
This is the basis of saving or making money or investing it.
And if you can’t wait, then you’ll struggle forever to be able to put money away, or invest it, to achieve some of those bigger financial targets you’ve set yourself.
They were able to follow the children from the experiment through their lifetime. These kids are now in their 40s.
What they've found is that the kids who held out for two marshmallows were more likely to get a university education, have a high paying job, have more friends, have bought homes, etc.
Another truth of life and finances is that we learn so much from our parents. It’s the “apple doesn’t fall far from the tree” sort of thing.
So, we have to be careful about what our kids pick up from us about money, Bruce says.
My parents weren’t too bad with money, but they rarely talked about it in front of us. There were some aspects of their financial lives that they never talked to my brother and I about, Bruce says.
So as parents, we have to be very careful, he says.
We have to make sure they don’t pick up our bad habits. If we’re into the latest flashy toys and are used to having a credit card that is permanently rising because of interest, then we’re likely to pass that on to our kids.
If we struggle to meet the rent or the mortgage every month, or we have to put items back from the grocery trolley, or we often say that we can’t afford to have that certain treat this week, the kids will learn from that. If our children think that that’s normal, then it will be normal for them.
Money isn’t the be all and end all of life. We all know that. But we want our kids to know more about money than we did. And be better using it, don’t we?
This is really important. If a child sees a parent panicking about investing, or too fearful to Invest, or getting scared off by one bad investment, then that will probably be what they take with them into later life.
However, if they see the parent carefully considering investments and getting excited about the prospect of investing, then that is more likely to be the attitude the child takes with them through life.
HOW OLD BEFORE YOU START TEACHING THEM ABOUT MONEY?
Some people say that as soon as they can talk, they are ready to start learning about money.
Bruce's son, Ned, is 2 years and nearly four months old, and he’s just starting saying “want”. This is apparently the perfect time to start teaching him about money, say some experts.
Bruce and his wife, Gen, have begun to let him play with a moneybox. It’s got some money in it from Grandad and some coins that we’ve thrown in there for him. He’s not quite old enough to understand the difference between the coins, he just puts them back in the moneybox and when he’s finished he asks to do it all again. It’s just a game. But he’ll start to realise what money is over time.
By about three or four years of age, the children are old enough to start learning about money in a serious sense.
The recommendation for pocket money is at about 5 years of age. And for a bank account, a little bit older, perhaps 7 or 8 years.
BASIC MONEY TIPS
Help your children identify the different between 'need' and 'want'. A need is an actual requirement, like food and clothing. But what is a need is relative to other things. 'Needs' can be things like a computer for school, if it’s actually a requirement of the school. A need can also be a car, if the teenager needs one to get to and from a job. However, the need is a car, which could be a second or third or sixth hand 1986 Ford Laser, rather than a new Hyundai or Holden.
A want is something you’d like to have, but could continue to live without. A mobile phone is a want. A constantly updated wardrobe is a want. An ipod is a want. Going to the movies is a want. You don’t need any of these things, you want them. They all cost money. Children need to understand needs and wants and to be able to prioritise for them.
SOME RECOMMENDED MONEY LESSONS
Give them a dollar or two in the supermarket and show them how much that money will buy them. Help show them that they don’t have enough money to buy this certain thing. But then show them that if they buy this and that, they’ll have enough money and they’ll have some left over for the piggy bank.
Help them set goals. Get them to understand that if they want an ipod or a CD or a DVD, how much money it costs and how much they would have to save each week in order to buy one. Then help them with their budget to get there.
Allow them to earn money for doing chores. It was the way that I learned the most about money, I think. If we didn’t do a bit of work around the house (taking out the garbage on bin night, make our beds, feed the pets, etc), then we didn’t get our pocket money. But different people will have different beliefs on that. I personally learnt a lot from it. Other parents will hate that concept. I think it works and will probably do it with my children when they’re older.
For older kids, make them use a pre-paid mobile phone where they have to top it up themselves, so they understand how quickly money can be spent.
In young kids, encourage saving. It’s the first step to learn when it comes to money.
MONEY IN SCHOOLS
Money isn’t taught well in schools these days. It’s possibly never been taught in schools.
When I was at school, we had a class called “commerce” and in that we learned about banks and building societies and cheques and credit cards (which were pretty new back then, as they only started in Australia in the 70s).
We need to start putting pressure on politicians and teachers about this area of the curriculum. Our schools are failing our kids on this crucial aspect of their lives. They’re leaving it to the parents. And that’s not a great idea, because not all parents have the skills to be able to teach their children. Teachers, however, are good at teaching and they could no doubt teach them anything so long as they’ve been given the right training themselves.
Like it or not, knowing how to spend, make and save money is utterly critical. Yet our schools barely cover it. We’re pushing out kids who have almost no concept of money and how it relates to the world that they live in.
I think the problem has got worse since I was at school, but that could be a response to the economic conditions we’ve had for the last 15-18 years. It’s been good times for so long that schools might have dropped it because there wasn’t a great belief that kids needed to know about money.
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