Creating money-smart kids

By Koh Noi Keng

Research suggests that children as young as three years old are able to comprehend the concept of money. By 12, they would have formed habits that will take them into adulthood.You might be surprised – “three years old?”.

Yes, like everyone else, kids learn best though play. Playing readily available games such as counting or sorting coins provides great opportunities to talk about what a dollar can buy and how every cent counts.

Use life’s everyday moments to teach kids about budgeting and about the concept of opportunity cost.

Let me illustrate how I explained to my daughters a whole lot of economic and financial concepts in simple terms.

My then-five-year-old daughter was enrolled in a Junior Music programme at Thomson Plaza and we took a cab to and fro for the first few lessons. Then, we took the bus and she was thrilled to describe her experience to Daddy later at home.

To explain the concept of opportunity cost, I used dollar notes to show her how by spending on one expense item, we could not spend on another. I explained: “It is your choice. If we take a cab, then we’ll use up our entire budget. But if we take the bus, we have money left over to buy a fish (the fish-shaped cheese pancake) and a book at Popular Book Store.”

In the weeks following that first ride on the bus, she always chose the bus so that she could have her fish and enjoy a new book.

One day, she flagged down a cab. I was surprised and after we got into the cab, I had to ask, “Sweetheart, don’t you want your fish and book today?”

My daughter replied with a smile: “Nah … Mommy, you look really tired. Grandma told me that you’ve been marking till very late the past few days and I think we should just relax and be chauffeured.”

I was so proud that besides succeeding in imparting the economic concept of opportunity cost, I had also managed to help her prioritise and decide on a wise allocation of funds. She seemed to have understood the concept that money is only a means, not an end in itself and that we should use money for our loved ones, and when necessary.

You may be thinking she deserved the fish and book, but I didn’t buy them for her. Don’t get kids used to having “easy” money, as the value of money will then no longer be taken as seriously. It also trains them to decide whether it is a need or a want. My daughters are now 21 and 23 years old, and they are still as prudent as before.

Start young

Around the age of five, start your child on a piggy bank. One day, I took my daughters to open a savings account at the bank and used the bank book to show them the printed proof of how their money was growing in the real bank. They were overjoyed and looked forward to making trips to the bank.

During the first week of primary school, my younger daughter asked for more money to buy cute chick-shaped erasers from the school bookshop. I refused and suggested she start saving her pocket money if she wanted those erasers.

That was how she realised that she had to make decisions about how to spend the fixed allowance that she received. She made arrangements with her grandmother to pack sandwiches for recess and brought a water bottle so she had money to buy her cute erasers.

We started giving our elder daughter an annual allowance when she was in Primary 3. By Primary 4, I encouraged her to record her daily expenses by giving her a pretty diary. My younger daughter was keen to participate in this “new game” too.

To encourage them to save, we promised to match dollar-for-dollar the amount they saved in the bank and did not withdraw until they were in college.

Creating awareness

As a parent, you have ample opportunity to talk to your kids about money. Discuss what smart money habits and decisions are all about by talking about your decisions. Take them through your thinking and decision-making process.

Parenting skills include positive role-modelling so if you have made a wrong decision, admit it and talk about it so they can learn too.

Christmas shopping is an example where you may need to justify your expenditure to your kids, otherwise they will experience cognitive dissonance in seeing you behaving differently from what you normally advocate.

The concept of planning and budgeting to share generously with loved ones once a year has taken on a new dimension as long as it is well within our means to do so.

Children can understand that with careful planning, it is possible to afford a little lifestyle indulgence, much like the fishes and chicks my daughters used to love.

There are lots of activities you can do with your children both at home and outside. Parents can build a nurturing environment and leverage on everyday opportunities for experiential learning so that learning is fun and spontaneous.

There are plenty of fun games that teach kids about money. Look out for Agent Penny online and smartphone game apps to be released in 2012 to schools in Singapore for free. Or play board games such as Monopoly, Game of Life and Pay Day. There are also lots of opportunities to talk to your kids about planning, investing in real estate and passive income.

Kids love to explore their environments, develop self-confidence and self-esteem, learn about accountability and develop social responsibility, so why not financial intelligence?

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Dr Koh Noi Keng is a senior lecturer at the National Institute of Education and is the chair of the CITI-NIE Financial Literacy Hub for Teachers.