By: Diana Bello Aristizábal
DORAL, FL – What parent has not dealt with a tantrum for not buying something his or her kids wanted? Who has bought a gift toy that is never used? And what child has not spent his or her savings on sweets and useless objects?
Undoubtedly, this is a reality for many parents that are failing at teaching children how they earn money, how to best preserve resources and how to save.
However, doing so is essential to create financial awareness from childhood that will be very useful in adult life; teach kids to appreciate what they have; give moderate value to material things and to manage resources appropriately.
In order to get this done, the first task for families is to widely comprehend what is responsible consumption. According to Lina Trujillo, financial agent for New York Life, expert in life insurance and savings plans, life and leadership coach and mother of two teenagers, responsible consumption begins when we are clear about our income and expenses, which means knowing the concept of cash flow.
“This is something that we must teach our children since they learn addition and subtraction. They should know that all families receive a certain amount of money per month as a result of the work done by mom and dad, which they use to pay for food, rent, and other basic expenses. What is left of those entries (income) and outputs (expenses), is used for vacations, toys, and entertainment,” explains Trujillo.
As cash flow is a concept hard to grasp for children, she recommends using toys, fruits or any other object that kids identify with in order to introduce all these concepts.
For example, parents can take five apples to represent family income. They can explain that two are meant for the rent, one for food, one for academic expenses and the rest for entertainment purposes. “In this way, kids can understand that budget is not unlimited,” says Trujillo.
Once children comprehend this dynamic, adults can draw up a plan with real-life familiar situations for them. For example, they can buy five candies and tell them that these should be consumed within five days. If the supply ends before the limit time, a new purchase will not be made.
When these lessons are common at home, children accept easier that sometimes it is possible to buy something they want, while many times it isn’t. “We come from a culture of ‘because I say so’, but nowadays kids demand explanations and are ready to learn about this,” she explains.
But in addition to talking about cash flow, parents also have to teach them about respect for material possessions and money. This means learning to take care of and organize personal belongings regardless of their economic value.
On the other hand, it is key not to buy in an unlimited way even if parents have the means to do so because there must always be a ‘reason why’ behind each purchase. “Don’t buy just for the sake of it”, warns Trujillo, who has chosen a few areas of interest at her home to determine whether a purchase should be made or not.
This means that for a parent it may be important to buy books because they add value to his or her children, while video games may not be as relevant. This priority ranking should be explained in detail so kids can better understand adult’s purchasing decisions.
In this line, it is also convenient to talk about sharing. The first lesson to be taught regarding this topic is that not everyone has the same economic resources or live under the same conditions.
While talking about this issue, parents can encourage minors to donate toys they no longer use and are in proper condition to non-profit organizations that help homeless or low-income families.
In this way, children understand that each object has a cycle that eventually comes to an end and in that moment, it can serve others. They also learn that a new toy should only be purchased when an old one has lost its value within the family and needs a new owner.
For Juan Pablo Casimiro, CEO and founder of Biznovator, a company that empowers young people in entrepreneurship, leadership, innovation and social impact, in addition to this, it is important as well to teach children from an early age that people earn things when they make an effort.
“Many teenagers are given everything they ask for, so they do not understand that money is obtained as a reward for the work done,” explains Juan Pablo, who is also an expert in finances management and personal finances, and has a master’s degree in business education.
The responsibility to change this reality begins with parents, who must be aware that the vast majority of things we buy are not as necessary as we believe and lose value quickly.
“There is no need to have 10 pairs of shoes and 50 blouses,” says Casimiro clarifying that it is not about avoiding shopping, but about doing it with conscience and passing along this message to children, because they are learning about consumption in the wrong way.
One way they can understand the relationship between effort and financial compensation is to reward them for doing non-mandatory tasks at home, such as cleaning the backyard, organizing the basement or washing the car.
For each one of them, points can be earned which would be converted into dollars when accumulated. “I recommend parents to assign additional chores to their children so that they can learn about work value. For example, the little ones can have a lemonade stand. By owning a very small scale business, they can further understand where the money comes from and how to make it grow,” says the specialist.
According to Casimiro, giving extra work to children will help them become independent and responsible human beings with good financial habits. “Many adults who received too much from their parents or never heard of money management while growing up, now have bad credit or ask for loans that never pay,” says Casimiro.
Lessons on saving
When it comes to teaching about responsible consumption and personal finances, one of the most important topics is how to save money. Learning to do so correctly from childhood is vital to have saving habits that extend into adult life.
With kids between 5 and 8 years old, one alternative to start cultivating these habits is to open a savings account endorsed by parents. The money earned for house chores can be deposited in that account.
“If, for instance, they make $ 25 by the end of the month, we can encourage them to deposit that money in the bank so that it grows through interest rates instead of spending it on unnecessary things. When children understand that 25 dollars can turn into 300, they become financially smarter,” explains Casimiro.
In the same line, Casimiro also recommends teaching them about the stock market and buying shares, which can be done with the parent’s permission and to understand when it is a good idea to invest in a material good and when it is better to save the money for another time. “If it tends to increase its value, the investment is good,” he says.
For Lina Trujillo, learning about saving begins when children have planning and money management routines. Her children were instructed in the matter when they started helping with the grocery shopping list every Sunday, which was created according to a previously established weekly menu.
“I made them participate in meal planning so that they could understand the importance of not wasting food. We all knew what we would eat every day and we made sure to follow the menu,” explains Trujillo.
As her children became older, she introduced T. Harv Eker’s six jars system at home. This consists of using six jars, envelopes, boxes or any other object to distribute income evenly.
According to this system, 55 percent of income must be deposited in the ‘necessities’ jar, 10 percent in the one for ‘long-term savings for expenses’, 10 percent in the ‘education’ jar, 10 percent in the one meant for ‘financial freedom’ such as saving for retirement, 5 percent in the ‘give’ jar and the remaining percentage in the ‘play’ one.
Since children do not pay for their basic needs, Lina introduced this system only with three jars: ‘long-term savings for expenses’, ‘give’ and ‘play’.
“When my son earned 10 dollars, for example, he distributed them within the three jars. This is how all my children learned to save and knew that if they wanted expensive shoes they had to take the money from the corresponding jar,” states Trujillo. In her experience, what is really important about this method is that beyond the amount of money saved, it helps to create good saving habits.
In conclusion, raising financially smart kids is about teaching money awareness and how to use resources wisely. If we succeed at this, we will have adults with greater financial freedom, more responsible for their debts and financial commitments and more capable of fulfilling their wishes and needs.