Giving money to kids for Christmas might seem like an easy escape from choosing a gift but in fact it can be a great way to teach kids 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 for kids to learn is that you can't have everything you want with the money you have available and it is necessary to decide on the most important priorities.
The next discussion to have is about money and time. There are two important lessons on this topic. Firstly, kids need to understand that money can only be spent once; either now or later. Budgeting to have money available over a period of time is a key financial skill. Secondly, if you choose to spend your money later, you can earn interest on it in the mean time 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 your kids 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 simple business Ė perhaps buying unwanted gifts and selling them for a profit! Last, but not least, talk to your kids about the importance of helping others who are less fortunate. Giving to others is a great way to realize just how wealthy you really are.
Liz Koh is a financial adviser. Her disclosure statement can be obtained free of charge by calling 0800 273 847. Author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press, March, 2008. For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com