If there is one thing that 99% of the human species want, and want it in plenty; it is money. From those earning the minimum wage of about Kshs. 10,000 to those in the upper 1% bracket earning over Kshs. 500,000 a month, everyone wants more. This has led to capitalism which has led to growth in our economy. On the other hand, it has also led to other vices such as corruption.
Children will pick most of their behaviours from what they observe their parents doing. Consequently, most of our financial management skills were first imparted to us, directly and indirectly, by observing our parents or the people who were closest to us when we were young. As time goes by, some lucky people will realise that their financial management skills are not any good and the process of changing will take time. Sometimes this realisation will happen after a major screw-up that will set someone back half a decade trying to correct the mistakes.
It is therefore vital for us to teach our children the importance of financial management so they do not make mistakes that will mess up half their adulthood. Richard Kiyosaki writes about the influence he had of the two ‘dads’ that he had while growing up in his ‘Rich Dad Poor Dad’ series. His biological father was rich but the values he passed to him were not beneficial. His neighbour ‘dad’ was not rich at the time, but he wanted to be wealthy (not rich). He is the one who passed on valuable lessons that helped him become wealthy.
Here are a few ways in which we can teach our children how to manage money.
Teach by Example
Money, like anything else, is best taught practically. The best way to teach children about money is to do it practically. Teach them by example. You cannot teach your children Principle A while practising Principle B. They will learn what you are practising rather than what you are teaching. Learn as much as possible about proper finance management and apply what you learn so that your children can learn from you.
The second step in teaching our children about money is to give them some little money to manage themselves. Most people call it an allowance, I prefer to call it a commission and I shall explain later. The amount does not matter and will depend on various factors such as the age of the child etc. It will be better for the child to make mistakes with the Kshs 100 you will give them rather than them making that mistake later in life with Kshs. 100,000 simply because you never saw them making that mistake with Kshs. 100 because you did not give them.
Supervise their Commissions
While the children will be responsible for their commissions, it is important to supervise. Have them split the money into different categories such as savings, investments, tithes (if Christian)/ alms (if Muslim)/ charity (if not religious), and money for use. Set clear rules on what percentage of their allowance should be saved or invested etc. Get a clear jar for the savings. A piggy bank is good, but it does not show progress. Children love observing and if they see their savings increasing, they will be able to save more. When they are older, open junior savings account for them.
I prefer to call it a commission rather than an allowance because of what an allowance implies. An allowance implies free money. A commission is earned. In the same way, money is never gotten free of charge, children must learn to earn money. The commission may be on simple house chores such as taking out the trash or clearing the table. The purpose is to teach them that money is earned and not just received. Most people will say it is bribing. There is a difference. If you tell a child to go to the shop and in return, you will give them a sweet, then that is bribing. On the other hand, if a child knows he has to take out trash three times a week for them to be ‘paid’ Kshs. 100 at the end of the week, that is not a bribe.
Discuss money with your children more often. It helps broaden their minds as well as make them more responsible. Engage them by getting their views on making choices in things that need to be bought. For example, when shopping, give them something like Kshs. 200 and ask them to buy different types of fruits. It is not much but it will help them in decision-making. If they make a mistake at that point, it will be easier for you to correct it and the implications will not be severe.
Discuss the Importance of Giving
Discuss the importance of giving. Christians give a percentage of their income as a tithe. Muslims give alms or zakat. If you are not religious, you can talk about giving charity to a children’s home and so on and so forth. The richest guys alive (Warren Buffet, Bill Gates etc) give a lot of money to charity, so it must mean something. Children must learn the importance of giving back to society as that teaches them about those who lack.
Discuss the Importance of Investing
Children must know the importance of investing. While money in the bank is good, it loses its value due to inflation. Investments are what makes the money multiply and what makes people wealthy. Teach the children basic investment principles, especially when they get to their early teens. While they may not have enough to do much, they can buy affordable shares on the Nairobi Security Exchange with your help. They will make valuable mistakes that they can learn from and not repeat again.
There are many ways to teach children about finances. The most important thing is to have them make mistakes that they can learn from when they are young rather than them making the same mistakes in their adulthood when it is too late or when the mistake has serious consequences.
I am a former investment Analyst who has recently ventured into the business world as a young entrepreneur. In my free time, I use the pen as a sword to shape the world so I can feel how awesome it would have been if I were a writer.