“Whether or not we choose to talk to our children about money matters, they will learn by watching us. Our attitudes and actions in dealing with spending and family finances are the most powerful lessons our children will learn about money. What messages are we sending our children?” – David Vogelsang
This is a question that I constantly ask myself, being a proud father to two very inquisitive young boys, 5 and 3 years old respectively. Young children these days are not like we used to be when we were their age (I now being 43). Times have changed and with all the electronic aids within arm’s reach, well, the enquiring minds appear to be more mature. I am sometimes almost floored by the questions asked by my 5 year old as they are questions I would never have been thinking about when I was 5. In saying this, my wife and I decided that we would try to instil good financial habits into our children from a young age, something that neither of our sets of parents did for us. I know that may sound harsh, but I believe our parents did the best they could with the knowledge and skill sets that they had at the time, and we decided that that cycle would end with us. We both grew up in households where the discussion around money was taboo – it was just something that was not discussed – and was the main contributing factor to a divorce in one of our families.
During one of my ‘surfing the net’ soirees, I stumbled upon David Vogelsang’s blog (http://dvogelsang.blogspot.com/), and straight away my interest was piqued by his articles and what he had to say. The one article that really rang true with me was about building a bank with your children – a physical “piggy bank.” This exercise would help teach them important life lessons, as well being a stimulating and creative process. The article revolved around “The Four Money Quadrants”, and I just loved this idea as it ties in with our “Four Cornerstone Approach” that we use as our main basis in regards financial planning at Infinity Wealth.
The importance of “The Four Money Quadrants” is to teach children the habit of splitting up all the money that they earn into the four quadrants, namely GIVE (charity), INVEST (compound interest), SAVE (setting goals) and SPEND (enjoyment). To explain percentages to small children really does not work, so breaking R1 down into cents is easier for them to comprehend. A good ratio to work towards is 10 cents to GIVE, 15 cents to INVEST, 25 cents to SAVE, and 50 cents to SPEND. My belief is that children need to earn their pocket money and not just be given it. Just being given money constantly leads to a form of entitlement and teaching your children to expect something for nothing. When the money is not given, this can cause your child to behave in a bad way as they begin to see their pocket money as a right and not a privilege.
I spoke to my boys about the idea of building their own banks and they were both excited beyond words – this was going to add a new dimension to the traditional “Piggy Bank” that I brought back for them from Switzerland. Building the banks was both a fun and bonding experience, also being a great creative exercise at the same time. Each quadrant becomes a mini life lesson, besides the fact that building their own banks also gives them a sense of ownership. You can basically break the four quadrants down as follows:
- GIVE: here your children will learn about compassion and a sense of community
- INVEST: the power of compounding interest over time
- SAVE: the habit of setting goals and the important virtues of patience and delayed gratification
- SPEND: responsibility and enjoying life
My 5 year old grasped all but one of the quadrants, the INVEST quadrant – compound interest to a 5 year old is such a foreign concept, so I had to put a bit of thought into how I’d explain compound interest. I came up with the following idea – I’d use his car seat in my car to help explain the concept. I explained that his seat was his INVESTMENT. He’d be responsible for it, had to keep it clean and the area around it clean, and by doing these chores, the extra money would be added to his INVESTMENT quadrant. For him to physically see the money being added to this quadrant after the first week of looking after his investment sealed the deal and my 5 year old was now well onto his way to understanding compound interest – plus the back seat of my car was constantly clean! A double score!
Once the SAVE quadrant had a bit of money in it, through birthday gifts and doing other chores, it then came time to decide on a toy or two. Both my boys know that they just can’t point at a toy in a shop and say “I want.” If they really want a toy then I’ll take the money from their bank and show them the bank notes next to the toy – basically giving them an idea of how many notes the specific toy will take away from their bank and their savings if they want to have it. I have been surprised on a couple of occasions when my children have looked at the money being held alongside the toy, and have decided to rather keep the money and save a little longer for a possible ‘better’ toy that may come along at another time.
Creating the Bank is a physical and mental learning experience which will assist your children to retain more about the concepts you’re discussing – through decorating the quadrants with pictures of the things they’re saving for, writing numbers on the bank, etc. Children will also feel proud of their accomplishment once their bank is completed, adding to their overall confidence and self-development.
And one of the main reasons why I love the idea of building these banks is that children from all socio-economic backgrounds can build and own one – their own personal bank. My belief is that this concept could help alleviate so many problems in less fortunate suburbs by giving all children a better sense of ‘self’ and teaching them necessary life skills to help add to a well-balanced society.
So, what messages are we sending to our children?