By Julie Lord
We have often written of our frustration that basic financial planning is not taught in schools.
Young people come out of school with no budgeting skills and in some cases no concept of the value of money and the idea that it has to be earned.
One of the challenges involved in teaching money skills is that money has become invisible.
It used to be the case that parents would bring home actual notes and coins and put them in jars labelled specifically to pay for electricity, rent, food, clothes and if they were lucky, a holiday.
It was easy then for everyone in the family to see where the money came from, where it went and the general state of the family finances at any one time.
Today it is easy for children to believe that money comes, without limit from a machine in the wall.
Even when parents try to explain that “money doesn’t grow on trees,” if children want us to buy a particular toy or some new trainers, we often hear them demand: “just use your credit card!”
And this is before we take account of Apple pay and Contactless where you can just flash your phone at a computer reader to have your bank balance magically reduced!
Part of our children developing an appreciation of the value of money, is teaching them where it comes from, at what rate it is earned (in the real world) and how it flows through the household.
This means they will have to learn some budgeting skills – the simple concept of money out should never exceed money in!
One of the best ways of teaching children these skills is to give them responsibility for some or all of their discretionary spending. This can begin at quite a young age.
We like the idea of a Family Bank as proposed by Arun Abey in his book “How Much is Enough?”
Each week or month, parents pay an amount into the notional Family Bank. The child is then responsible for paying for items such as movies, toys and sweets or whatever is agreed.
A simple monthly statement can be produced for each child showing money in, amount withdrawn and the current balance. To encourage savings discipline, parents may offer a small bonus for any amounts that remain unspent at the end of the month.
The Family Bank needs a few basic rules to work efficiently:
Agree in advance, what counts as discretionary spending. Obviously we assume parents will still pay for food, accommodation and school stuff, as well as other essential items. If the child is fashion conscious, include clothes in the discretionary budget or just decide it will be for treats and trips to the cinema etc.
Create a clear system to show how much is spent. Every time the child withdraws money from the Family Bank, keep a note of this and update the balance every month.
Parents must have a disciplined approach. At work, the boss won’t give a pay rise if someone overspends, so let’s teach children this lesson at an early age.