Diana Clement: Early lessons in financial literacy are invaluable

Teach the young good money habits early as it gets more difficult for older children to change. Photo / Thinkstock

It's school holidays. I've seen a good number of children roaming the malls this week spending money.

All too many of them will be on a slippery slope to Generation Debt, like their deeply indebted peers in Gen Y.

I've written often about some of the basics of teaching young children about money - such as giving them pocket money, making choices, getting them to budget for the things they want to buy and learning the savings habit.

As my own children grow older I can't help but ruminate on whether their financial education is up to scratch. Both certainly understand the value of saving and making choices.

There are also regular conversations about one child's brand obsession and about how that means his money doesn't go as far as his sister's. Said sibling has always been a better saver. I asked her this week about why this is and got an interesting answer.

What surprised me was that she said she really enjoys spending money, but has figured out that she gets the same buzz from buying virtual items using virtual money on websites such as Stardoll.com as she would from purchases involving real money.

She says that by saving she can afford large ticket items when she wants them. The virtual spending ensures the contents of her piggy bank and account remain untouched in the meantime.

It's important to start early to educate children about money. About 80 per cent of 8-year-olds have already developed spending and savings patterns, says Sharron Buer, head of primary programmes at the Young Enterprise Trust. It can be more difficult psychologically for older children to change their habits. It's best to work on getting the right habits from day one.

It's not rocket science. The trouble is that most parents simply don't have the money conversations with their children, says Sunnynook Primary School's lead maths teacher, Vivienne Goldsmith.

The world is your classroom, says Goldsmith. Those conversations with children don't have to be complex.

For example, says Goldsmith, take them to the supermarket and discuss what something newsworthy such as tomatoes cost. If they're $14 a kg, ask the children to weigh a single tomato and work out what it costs.

Likewise, she runs an exercise at school that parents could do at home. That is giving children a number of shop fliers, a budget and encouraging them to "shop" for Christmas or a birthday. Some children choose one expensive present, but change their tune when they realise they need to buy more than one present and have just a limited amount of money.

Another home activity is to study an electricity bill, show the children how the meter works and get them to experiment with making the meter go slower by turning off appliances in the house. Or if, like me, you've got pet-loving children, search the phrase doggone-expensive on NZmaths.co.nz and download the lesson about the cost of keeping pets.

Keeping the lines of communication with your children open is one of the key rules of engagement in the "war against debt", says financial author Andrew Lendnal, who has recently published Gold Start: Teaching Your Child About Money. "Children who aren't taught these lessons suffer the consequences for a lifetime."

An example cited in Lendnal's book is to give your children a budget to buy their own school stationery. They will find that their budget doesn't go far at trendy stationer Smiggle, and will need to downgrade their expectations for the majority of items in order to buy everything they need. Using cash instead of Eftpos on a trip such as this allows children to make the connections between their choices and the spending.

It's a rare parent that actually does this type of exercise. What's the point, I sometimes wonder, of pushing them academically to get a career that pays well, if they're simply going to blow their salary and more on consumer goods and interest payments on easy credit?

One big roadblock in educating children about their finances, according to Lendnal, is that parents have been raised to believe that they don't talk about money with children.

Thanks to the New Zealand National Curriculum, which came into effect in 2007, financial literacy is now a part of our children's education. As a result most primary children will get some money education in school. Children who encounter a teacher such as Goldsmith who is passionate about financial literacy are very lucky.

At Sunnynook Primary, lessons are built into numeracy. Simple concepts such as skip counting can be done using plastic money, for example.

The Year 5 and 6 students were involved in a recent project where they each brought in $1, which was to be donated to Oxfam. Instead of simply handing the pot of money over, each class had to come up with a money-making venture for their "capital" in order to increase the overall donation to Oxfam. The classes did things such as have a bake sale to generate profits and maximise the value of the donation.

There are plenty of resources for teachers to use in the class and parents who are concerned about their children's financial literacy can talk to teachers. Among other sites, Goldsmith recommends NZMath.co.nz and Nzcurriculum.tki.org.nz. It's possible for parents who are interested to download these resources and use them at home.

The Young Enterprise Trust has developed excellent resources for teachers and children who go through the programme to learn both money and business skills.

The ASB also offers GetWise free financial workshops for primary schools. The workshops have reached 100,000 primary and intermediate-age students since last year.

There are resources aimed directly at families and children themselves such as sorted.org.nz. Goldsmith also recommends parents Google the phrase "free money games for kids" to find many useful ones. She also recommends Khanacademy.org, a mathematics site, with more than 100 educational videos about finance, covering simple topics such as investment versus consumption, to very high level financial literacy education.

Another Kiwi-published book with practical exercises for kids is How to Stop Your Kids From Going Broke, by financial wellness educator Sylvia Bowden.

The Young Enterprise Trust has been offering programmes for many years. That includes, as the name suggests, enterprise programmes as well as general financial literacy.

Being enterprising or, as Lendnal calls it, "a junior tycoon" is a real bonus for young people, providing they learn to handle their income. Some youngsters who participate in these programmes, says Buer, go on to be very successful financially in life.

Buer has tracked some of the children she taught in the past. One, Chris Aukino, a business owner now in his 20s, started studying the trust's Primary Enterprise Programme (PrEP) programme at Colwill Primary school in West Auckland at 8. Two days a week he would become an "employee" in a teacher-run venture.

"Although I didn't realise it at the time I was not only learning the value of money but also the value of employment to an employee," says Aukino "If I was absent or late from my PrEP class without a valid reason or approved leave I would be docked; if I was docked pay I wouldn't be able to buy things at market day like those who had good attendance. This, of course, embedded a want to show up each afternoon and perform to my best."

Aukino went on to run four classroom "businesses" at Colwill and joined Young Enterprise Trust programmes in intermediate and high school.

Talking to your children, isn't, of course all it takes to make them financially successful. There are many other things that happen in the house that mould a child's thinking and behaviour about money.

If the parent has unresolved money issues, behaves differently to what they say about money, uses money as a bribe, or many other no-nos, their offspring will probably follow suit. Children learn much of their money habits by watching their parents and peers.

Next week: Teens and their money.