Parents get a lesson on the financial habits of children
If, like most parents, you believe children learn about money in school or from playing the board game Monopoly with their friends - think again. They start learning about money and developing lifelong financial habits at pre-school age by watching their parents, according to Paul Stefansson of ipac financial planning.
'When I was a little boy in Canada, I was told polite people never talked about four things: sex, politics, religion and money,' he said. 'Now we make jokes about the first two, but money is a very emotional thing. Because of that, we never teach our kids.'
Mr Stefansson, the company's regional director of corporate relations, is actively involved in the Kids & Money seminar programme held in ipac's Hong Kong and Singapore offices. The programme is being extended to international schools through parent-teacher associations to reach more parents with an important message - be a good financial role model.
'We do a lot of work with financial literacy. Even if you're financially literate, it doesn't impact on how much money you save. Intelligence and habit are two different things. So it's not just about being financially literate, it's about good habits and that's where role-modelling comes in,' he said. 'We try to help the parents be good role models, which involves the nasty B word - budget.'
The long-term implications for children who develop bad money habits include financial ones such as bankruptcy, emotional problems such as low self-esteem, and relationship issues. 'A lot of divorces are caused by bad money habits,' he said.
Paul Clitheroe, an ipac founder, has received about A$16 million ($95.2 million) from the Australian government to drive money education into the curriculum. In the US, where more people go bankrupt than graduate from university each year, according to a Harvard study, there is a similar programme called JumpStart.
The Harvard study, by law professor Elizabeth Warren, also reveals that 60 per cent of young adults have consumer debt when they graduate, while 24 per cent have to move back in with their parents because they made some financial mistakes and cannot pay their rent, credit-card bills or debt. About 40 per cent of young adults have less than US$3,000 saved.
More worrying, according to Mr Stefansson, is that the children of affluent parents were less likely to understand the value of money or how to save it. On average, children need to nag parents nine times to get what they want.
He recommends that parents, whatever their income levels, begin discussing money issues with their children as early as possible. He says studies show children can begin learning the concepts of earning, spending and saving around the same time they begin speaking in complete sentences.
When it comes to teaching them about borrowing or sharing, they need to be a little older to understand the mathematics and be able to see things from another's viewpoint.
There are various techniques to use at different stages of a child's development, but the Kids & Money programme emphasises that the underlying idea, no matter what age the children are, is to keep it fun.
Parents with pre-school-age childen, who think all money has the same value, can help them to separate coins by colour and size, while discussing their value. The children can also hand over the money at the cashier when the family goes on shopping trips.
Giving children an allowance helps them to learn about financial responsibility through money management. According to Mr Stefansson, an allowance is the best and most hands-on method of teaching children how to spend and save.
The amount of the allowance depends on the child's age and the parent's income, but it should be enough to meet the child's needs and not necessarily everything on his or her 'I want' list.
The Kids & Money seminars are usually done with groups of 50 parents, but Mr Clitheroe has hosted up to 180.
As children learn about money, they also begin to learn other important lessons such as decision-making, goal setting, priorities and responsibility.
As a final thought, Mr Stefansson offers the following words from American investor Warren Buffett, the chairman of Berkshire Hathaway: 'Give your kids enough money to do anything, but not enough to do nothing.'
Encourage and praise children rather than rebuke or criticise
Guide and advise rather than direct or dictate
Allow them to learn by their successes as well as their failures
Explain what the parameters are and apply consequences if they are breached
As children grow older, include them in discussions of limits and consequences