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Cash Smarts! Explaining The Value of Money

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How old do your kids have to be before you can start teaching them the financial facts of life, and how do you go about it?

Joe Dobbs reports

I knew by the time my daughter Amy was three that she had inherited her grandmother’s ‘consumer gene.’ From when she was very young, Amy was into pretty things (particularly shiny, pink pretty things) and she wanted lots of them.

Amy wasn’t born a window shopper. If she fell for a Hello Kitty lunchbox in a store, ‘just looking’ wasn’t enough, she wanted to own it. At this age, it was fairly easy for my wife and I to distract our budding shopaholic from potential pink purchases, but we quickly realised that we needed to teach her about money, and specifically that it doesn’t grow on trees.

First lesson, and a hard one for any kid: You may have to wait to buy something you want. How to get this message across? In a store, I’d explain that we were there to buy a gift for a friend that day, and that I didn’t have extra cash in my wallet to buy something for Amy. If an expensive item caught her eye, we’d discuss why this purchase would have to wait until October (birthday month), or Christmas.


Once Amy was five or so (able to add and subtract), we began to look at the prices for treats she wanted in the supermarket, and she’d help me count out the money. Most days we’d have enough money for a packet of crisps and a chocolate bar or two but occasionally she’d have to decide which item she wanted more.

This decision-making process allowed me to introduce Amy to the concept of ‘wants and needs’ – did she really need two chocolate bars or would one suffice? Then we talked more generally about the financial expenses that Mummy and Daddy have to meet each month, such as groceries, school fees and electricity bills, and why finding the money for these has to be a priority. Amy began to understand that sometimes not all her demands could be met, as needs are more important than wants.

From early on, we also talked about earning money – introducing the concept that people (Mummy and Daddy included) go to work in order to make a certain amount each month. We’re living in an age when children think milk comes from plastic bottles, fruit comes from grocery stores and money comes from the ATM machine. It was important to teach Amy that ATMs and credit cards aren’t a means of money on demand; rather, they are connected to your bank account, and you can only withdraw what you’ve saved. Even tiny tots can learn the value of money, where it comes from, and that it is finite.

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The best way to learn about money is of course to have a little of your own, which is where allowances come in. Due in part to her inherited shopaholic tendencies, we started Amy off with a small allowance age six.

We gave her HK$100 a week, and out of this she knew she had to buy her own after-school sweets, sodas and stickers. Through trial and error, she quickly learnt how to make her allowance stretch. She discovered that if she blew it all on a Monday, there’d be no more treats until the following week.

From the beginning, we made it clear that Amy wasn’t being paid for doing her chores (these she knew she did for free) but we did give her the opportunity to earn bonuses for behaving well. Each week we started with a bonus but she knew it could be removed as a consequence of bad behaviour.

The main reason we give kids an allowance is to allow them to learn to spend wisely, save and share. Remember piggy banks? Until very recently, Amy had three jars in her bedroom, labelled ‘Saving,’ ‘Spending’ and ‘Sharing.’ She learned to divide her allowance between the jars, using the money in her spending jar for small purchases, the money in the sharing jar for donations to various causes, and the money in the saving jar for more expensive items.

My wife and I always kept an eye on the saving jar in particular. It’s great for children to have a goal, such as to buy a toy, but you need to set them up for success. Make sure the item is not so pricey that they won’t be able to afford it for months. Early on, we came up with a matching programme to help Amy reach her goal (get her toy) in a reasonable time frame. Maybe we spoilt her but we put in a dollar, for every two dollars she saved.


Now, aged 13, Amy has her own bank account. She handles her own monthly allowance, and I’ve made sure that it’s large enough to allow spending beyond what is absolutely necessary, but not so large as to seem inexhaustible. The amount she receives mirrors that of most of her friends, though one boy at school gets a lot more. This lad’s excessive spending power led to an interesting and, I think, valuable discussion recently about the realities of our family’s financial situation.

My wife and I continue to be very clear about what Amy pays for from her allowance. For example, we pay for things like ferry tickets and phone bills, she pays for ‘extras,’ like cosmetics or takeout from Starbucks. We pay for the clothes she needs, if she wants yet another pair of big-brand trainers, she pays for it herself.

In order to encourage saving, I’ve taught Amy to write everything down – to ‘keep the books.’ Instead of relying on her end-of-month bank statement, she has a simple spreadsheet, with columns for the date, the allowance amount paid, and the running total. If she takes money out of her account, she notes down the date and the amount, and what she bought. This way she can track her spending, and her savings.

Rather incredibly (at least to me), Amy does have savings, and she doesn’t let the money in her account fall below a certain amount. If a purchase would reduce her account below her set minimum, she waits until she has more money before making that purchase.

Of course, there are occasions when Amy comes to me expressing a desperate need for some ‘essential extra,’ which her savings can’t quite cover. For this I’m grateful, as it has allowed me to open a discussion about borrowing and debt. We talked the other day about credit cards – how getting money in this way is like taking out a loan. Amy understands that if you don’t pay your bill in full every month, you’ll be charged interest and owe more than you originally spent.

I cannot bring myself to charge my child interest, but I do make sure that any amount borrowed is paid back within the allotted time period. It’s clear to my wife and I that time spent with Amy on all of this could be one of the most rewarding investments we’ll ever make.

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