KEY POINTS:
The festive season is a make or break time for instilling good money values in your children.
On one hand, they can learn that they get every last consumer good they want on an express delivery from Santa, so Mum and Dad don't have to work to pay
for the goods - and then it's a slippery slope to a spendthrift adulthood for some.
Or they can learn some financial home truths.
Too few parents ever talk to children about the cost of Christmas and the choices involved, says Ian Grant, director of Parents' Inc. "Parents have to talk to their children [about money and spending]; that is how they learn."
Parents should think about the way gift giving is managed, says Lyn Morris, national financial education director of the Enterprise New Zealand Trust, so that children have a say in what happens, and how it affects them and the family. "As a result they could be encouraged to take on some personal responsibility.
"As Christmas is often a time of high spending and high expectations among children, the values and skills that our programmes promote may reduce the stress that some families experience."
There are five broad stages for kids learning about money. They are:
* Money buys things - pre-school.
* Spending requires choice - early primary.
* Different payment methods - late primary.
* Payments can be delayed - intermediate.
* Managing credit affects your future - secondary.
Learning about money involves a mixture of action and reflection. Depending on the age of the child, the action part can involve earning a sum of money through simple tasks or jobs to be spent on Christmas gifts. The child then needs to work out how many presents to buy and divvy up the money accordingly. This is a hugely important lesson.
The reflection part involves talking to children as they make their decisions, and afterwards, so that the child thinks about their actions. If, for example, they want to buy Aunty Rose an expensive perfume and this leaves only enough to buy a card for the rest of the relatives, then the child needs to think about how to solve the problem.
That might involve "working" at home or outside the home to earn some more money to supplement their Christmas budget.
Grant says when children reflect, they think. "Functional behaviour is 'I feel, I think, I act'. Dysfunctional behaviour is: 'I feel and I act'."
When it comes to giving gifts to children it makes sense to consider short-term desires and gifts that keep on giving. The latter may be money to be invested or a gift to charity.
Many people don't like to give cash or cheques to children, preferring to see their faces light up when they pull out a brightly coloured plastic toy. But many of those toys will be abandoned by Boxing Day, whereas a gift of money, handled well, could have lifelong benefits psychologically and financially for a child - providing the giver uses the gift as an educational opportunity.
"[Children] could then be involved in the decision-making about how far that money will cover their expectations, and whether or not they will need to put some of their own money towards the item," says Morris.
"That may encourage shopping around after the hype of Christmas, looking at value for money."
A variation is to split the money into three portions and give a portion to charity. Or, if you prefer to give the children the choice to spend, save, or make a gift of the money they receive, then there could be a discussion about how to use the money, says Morris.
If children are giving money to charity a discussion of how it will then be used will help them reflect. Many families support charity, but fail to get their kids involved in the process, says Grant.
Christmas charity schemes have captured people's imaginations and are a great way to get kids interested in giving. Oxfam Unwrapped lets you or your children choose a gift at www.oxfamunwrapped.org.nz, which is then donated to someone in need in an underdeveloped country.
Some of the most popular gifts include:
* Three ducks for $15.
* A goat for $45.
* Ten school books for $50.
* A pair of lambs for $40.
* A school desk and chair for $35.
* A coffee plant for $20.
Children can grasp saving for the future, providing you couch the discussion in terms they understand.
Saving for retirement might seem an impossible concept for a child to grasp, but not if related to their grandparents, and how they would get by on government superannuation alone.
Something they're more likely to understand is saving a deposit for their first home which, if they're good savers, they could buy when they go to university or first start work.
This is in the horizons of even 5-year-olds. As children get older it's a good idea to link in how their Christmas gift money relates to getting a mortgage. They may also like the idea of being able to buy their first car for cash when they reach the legal age to drive.
The advantage of paying Christmas money into a KiwiSaver account is that, unlike a savings account, it can't be dipped into by feckless youngsters.
If those children don't already have a KiwiSaver account, then even a small gift will grow substantially thanks to the $1000 government kick-start. And some KiwiSaver accounts, such as Westpac's, don't require children to make regular payments - meaning that the money can just sit there and grow.
Portfolio investment entities (PIEs), a type of managed fund, are another option for children. The money can be withdrawn from these, but it's not as easy as a bank account.
Typically, they invest in equities or commercial property and they are taxed at the child's marginal tax rate.
However, unless the gifter specifically wants the child to be able to withdraw the money at will, or it's a savings scheme to pay for university, then investments in PIEs don't make as much sense as KiwiSaver with its fees subsidies.
Another option is to get children interested in investing in companies they understand, such as Pumpkin Patch or Auckland Airport. Providing it's a small parcel of money, the learning experience will outweigh the risk of not having a well-balanced share portfolio.
Christmas spending isn't all about presents. Children can also be given a role in planning the family budget.