How to Begin Teaching Kids About Money, Whether She's 4 or 12 Years Old
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  • “Most people see money merely as the means to buy things they need and want, not a means to invest and accumulate assets,” writes Dr. Marnie Moya Prudencio in her book How to Be a Money-Smart Parent and Raise a Money-Smart Kid. She continues, “As a result, money becomes an end in itself, rather than the means to accomplish one’s personal goals and dreams. People work for money instead of making money work for them. And in order to earn, one has to put in more hours to earn more money. The end result: people spend more time in their jobs and careers instead of their families, their advocacies or their passions.” Raise your hand if the scenario Dr. Moya-Prudencio describes sounds all too familiar.

    Most people toil away at an 8-to-5 job for years to be able to provide for a family’s needs. If they’re smart enough, they’ll have enough to see them through retirement; otherwise, they end up being dependent on their grown kids, an accepted (even expected) practice in our country, with its cultural trait of utang na loob. The kids, in turn, are left unable to prepare for their own retirement, repeating the whole pattern. 

    It’s time to break the vicious cycle. If you start your kids young and show them the path to financial freedom, then you can rest assured that they’ll have one less problem to think about when they’re adults. The problem is if the parents themselves aren’t money-smart.

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    Clarissa Seriña-de la Paz, co-author of I Wish They Taught Money in High School, and a mom of one, stresses, “We can only pass as much as we know of money to our children.” If you haven’t educated yourself about money, then start from there — research, read up, attend a seminar or two. Once you become more knowledgeable, you can then share your wisdom with your kids.

    Seriña-de la Paz says that one of the biggest mistakes parents make is not talking about money at all, like it’s a taboo topic. In her book, she writes (published as is): “Avoiding the topic fosters a kind of fear for money, or puts it up on a pedestal far from reach; but we all know this isn’t really the case. Money passes through our hands every day, so talking about it shouldn’t be deemed sinister or offensive. Let’s popularize these dialogues, and see how much healthier your impressions on money become.”

    Unsure about how to even begin teaching kids about money? Use this syllabus as a guide.  

    LESSON 1: Start with values.

    “My whole philosophy when it comes to teaching kids about money is you want to teach values before the skills; values that you can springboard from so that when they actually learn the skill, it is founded on the right behavior,” says Edric Mendoza Jr., lead anchor of ANC’s personal finance show On the Money, president of TMA Homeschool, and a father of five. “In terms of how soon, I think you should start them as early as they can understand the right values.” 

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    Mendoza’s family emphasizes four values in particular, and these translate into specific money skills later on: 

    Hard work, and this later translates into the idea that money doesn’t come for free. Experts generally advise that kids be given just enough allowance to cover their basic needs, like food if they don’t have baon. Anything other than that should be earned. Seriña-de la Paz recalls, “During summer, my siblings and I had summer jobs, a.k.a. chores, at home. We didn’t just earn money from this; we also learned valuable lessons. We definitely learned the value of money—that it required hard work and giving up playtime to earn a peso. So whenever we wanted to spend on unnecessary stuff, we thought twice.” 

    Thriftiness, which translates into saving, “where they actually have a piggy bank so that they can see that it’s gaining, their saving is producing results,” says Mendoza. Thriftiness is something kids can learn, from turning off lights and gadgets when not in use. Mendoza chuckles as he relates how, when they eat at a restaurant, his kids speak up when they think the drink he ordered is too expensive. “They’re the ones who tell us that we don’t need to spend on those things,” he says. It’s important to note that the values should be ingrained in the parents, as kids learn more from what you do, rather than what you say. 

    “One mistake that parents make is they don’t see it in us, it’s inconsistent,” says Mendoza. “We tell them things like, ‘You know, your classmates are pressuring you to buy nicer toys or clothes,’ but when we go out, they see that we spend in these very expensive stores.”

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    Stewardship, or “taking care of things—not grabbing, learning to share, remembering that it is not really their thing or their toy that they acquired at Christmas or their birthday,” he says. “When you look at the idea of stewardship, what you will see as a skill is investing. If you’re able to care for something and remember that it is not yours per se, you will find ways to make sure that you maximize it.” 

    Sharing, and the skill that this hones is giving. One of the ways he and his wife demonstrate this value is by exposing their kids to relief operations when calamities strike. As a result, he shares, “My children, the older ones especially, appreciate the idea of tithing or giving back to the church. So when they make money from, say, a speaking engagement I invited them to, they give a portion back to the church.” 

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    LESSON 2: Hone their skills.

    Once kids start doing simple math, you can start teaching them skills related to money. Seriña-de la Paz says, “I remember my parents started teaching us about money as early as prep.” Based on her experience, she outlines the specific skills you can teach, depending on your kids’ age. 

    Preschool 

    “You can teach your kids that money is fun — having your own passbook is fun; trips to the bank and being greeted over the counter is fun; buying something on your own, like from the school canteen, is fun,” she says. Seriña-de la Paz was fortunate that her parents made a conscious effort to teach her and her siblings about money. “They also used the subject of money to explain why they had to go to work, and we appreciated that. I had a perception that if I want to be able to afford bigger-ticket items, I needed to work hard for it.” 

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    Early grade school 

    “We can introduce the concept of delayed gratification to children,” she says. “Every first of January, my dad gave me and my siblings one bamboo bank each. We decorated them using markers before they became heavy with coins. We had one year to fill it up with our loose change/allowance, with a promise that my parents will double whatever the amount is by the end of the year.”

    This generated much excitement among her and her siblings at the end of the year, and they looked forward to going to the bank with their earnings on January 2. “There was just that feeling of fulfillment and empowerment as our passbooks earned stamp after stamp.” 

    Fourth grade 

    When kids already understand percentages, you can teach them the concept of interest. Seriña de la Paz elaborates, “Parents can now educate them on the different financial institutions and returns they can earn while making them practice math at the same time. Given this, I realized that the doubling of our bamboo bank savings was very generous of our parents and far from the interest rates out in the real world!”

    She also says that you can teach kids not just about how interest makes money grow, but also how it can hurt them. “I’m talking about credit cards. My mom emphasized this early on among my siblings and me—that if we don’t pay those plastic cards in full every month, we will end up paying not just a simple interest late fee, but a compounded one at that. This has definitely stuck in our minds.” 

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    Sixth grade 

    You can explain the stock market in simple terms. In her book, Serina-de la Paz narrates, “My dad tried to explain the stocks to me in the simplest way he could think of. He said that if I lent some of my money to a group of people, if they earn, I’d earn as well. Come to think of it, that’s all it really is.” If your kids show an interest early on, then by all means, introduce them to the different investment instruments. Mendoza’s eldest, for example, started investing when he was just eight years old. “My son got interested because he heard about stocks and equities through my conversations with my wife,” he says. 

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    LESSON 3: Work towards financial freedom. 

    “Most schools and parents don’t teach how to invest and accumulate assets or work for the freedom to spend more time with people who matter the most and to fund advocacies that are dear to our hearts,” writes Dr. Moya-Prudencio. She goes on to explain that the prevailing mindset is to get a good education, to get a good job, and to earn money from that job as an employee. Entrepreneurship and investing aren’t taught in any of the usual subjects in school. 

    Interestingly, many of the books about teaching kids to become money-smart are focused on entrepreneurship: 8 Simple Tips for Young Entrepreneurs by John Rodica, 8 Simple Secrets to Raising Entrepreneurs by Mary Joy Canon-Abaquin Ed.M, Super Tykecoon: Teaching Kids How to Save & Start Their Own Business by Aya J. Mendoza Sadiwa, to name a few. The experts recognize that kids need to learn that the way to financial freedom is by finding a stream of income independent of day jobs.

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    To this end, Dr. Moya-Prudencio offers the seven developmental stages of financial literacy. On her own financial journey, the developmental pediatrician learned that “just as there are different stages of progress in different domains of development, there are developmental stages of financial literacy. In motor development, for instance, before you can run and jump, you first have to have good head control, then be able to roll over, crawl, and then learn how to sit, stand and walk,” she writes. “In financial literacy, the highest level of achievement is financial freedom, where your passive income is more than your expense.” 

    Whether that’s something you would teach your own kids or not, the bottom line is it’s important to equip them with the proper financial knowledge and tools. Then, as with any other part of parenting, you eventually let go and trust that they’ll make good decisions based on what you’ve taught them.

    This story originally appeared in the December 2015 issue of Good Housekeeping Philippines magazine. Minor edits have been made by the SmartParenting.com.ph editors.

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