Giving money to kids for Christmas may seem like an easy escape from choosing a gift but it can be a great way to teach them important lessons about money and life.
If your kids receive money from you or from others at Christmas, encourage them to make a wish list
before they spend it. Against each item on the wish list, write the approximate cost and add up the total cost.
The first lesson is that you can't have everything you want with the money you have available and it is necessary to decide on the priorities.
The next discussion to have is about money and time. There are two important lessons. First, children need to understand that money can be spent only once; either now or later. Budgeting to have money available over a period of time is a key financial skill.
Second, if you choose to spend your money later, you can earn interest on it in the meantime and have more to spend. Teach your kids about the power of compound interest, to show them how much their money can grow the longer it is invested.
As well as spending and saving, there are other options for children to learn about. Investing in a business can be a great way to multiply your money, or lose it, depending on how well the business does.
Encourage your kids to think about how they could use their money to set up a simple business - perhaps buying unwanted gifts and selling them for a profit.
Last, but not least, talk to them about the importance of helping others who are less fortunate.
Giving to others is a great way to realise just how wealthy you really are.
Liz Koh is a financial adviser. Her disclosure statement can be obtained free by calling 0800 273 847.
www.moneymax.co.nz
