05/24/2009 11:46 PM | By Rabab Khan, Community Journalist
Most children have been exposed to the concept of a grocery list. At first it may seem like an adventure – exploring the house to figure out what items are needed, followed by a visit to the nearby supermarket for the final treasure hunt. The overlooked fact, however, is that in the process many of them learn about the true value of money.
Steve Gregory, Director of Technical Services at Holborn Assets Limited, an international financial services company, believes that these lessons are a crucial step to help your child understand the purpose of a budget.
He urges parents to explain the importance of budgeting to their young children.
He said: "There is nothing more dangerous or damaging than an inability to know the value of money. Good habits formed at an early stage are vital for financial success. The best practices start at home, even for millionaires."
Simple practical methods might be the key to an easy form of education for children.
Gregory said: "Children should be reminded of the importance of money constantly. But, they also need to have fun."
One of the easiest ways to teach your child could be to give them a reward for showing interest.
Gregory said: "Parents can positively promote good behaviour by rewarding children for achieving something. The rewards need not be purely financial. Buy them a notebook to keep a record of their spending. Reward them with something, like a visit to the cinema, when they demonstrate they can complete the task."
A lot of children receive an allowance, or ‘pocket money', after specific intervals. While they manage their records, parents should encourage them to save some of this money, which then allows them to learn the skill of building and managing a budget.
Gregory suggests that the allowance should be given only if a child has achieved an agreed list of chores around the house.
He said: "Children need to know that money does not grow on trees and is instead paid for services rendered."
Due to early education and support, children would then learn to save money and avoid unnecessary waste. For instance, if a parent gave his or her 7-year-old child Dh10 per week and the child learnt to save at least Dh2, it would then account to Dh12 the next week.
If Dh2 was saved every week, by the end of the year the child would have saved over Dh100. With that much money, children could adopt a pet, buy their favourite video game, join a library in the neighbourhood, purchase food supplies for a fun-filled slumber party or get an economical music player.
Gregory said: "Starting early enables good habits to form before bad ones do. If children are used to receiving everything they demand, they will maintain that level of expectation throughout their life, or until they learn new habits."
It is always easier for a parent to teach a younger child to be careful when it comes to money. Older children have the tendency to follow certain practices.
It is best to set a certain budget for your child's need. If he or she constantly demands a certain pricey object, setting and clarifying limits is important.
Gregory said: "When my son was younger, he always wanted the latest training shoes, which were obviously quite expensive. Once, we gave him half the money and sent him shopping. He came home with two pairs he liked and they cost a fraction of the ones he originally wanted. He learned that he could find happiness in less expensive goods."
Another way to encourage children to save money would be to match their savings with an equal amount when they want to make a major purchase.
For example, if they wanted to purchase the latest gaming console, you could pay half the amount if they saved up the other half in a set time frame.
Gregory promotes this procedure, too. He said: "When the child has saved a percentage, the parents could pay the balance. This teaches them good housekeeping!"
With rising costs and the trouble of managing high budgets, people tend to misuse their savings.
Gregory concluded: "The fact is that many people today don't manage their money because that is what their parents did. But, the future holds shocks for them."
TIPS FOR TEACHING CHILDREN BUDGETING:
- Explain the importance of budgeting to young children.
- It is always easier for a parent to teach a younger child to be careful when with money.
- Parents can promote good behaviour by rewarding children for achieving something.
- The rewards need not be purely financial.
- To encourage children to save money match their savings with an equal amount when they want to make a major purchase.
- An allowance should be given only if a child has achieved an agreed list of chores around the house.