FOLLOWING on from a previous ‘Voice’, I came across a very interesting article about the six key money skills kids must master “before leaving home”. 

The first is how to handle a cash allowance. Kids need to learn how to set priorities and make the right spending decisions when they have to get by with $5 to $10 a week.  

In exchange for the money that you give them, kids should take over some financial responsibilities from you. For instance, a seven-year-old will have to pay for his own trading cards or games; a 16-year-old will need to handle his or her clothing allowance. 

The second is to have a saving goal. Not everyone can save for the sake of saving. Like all of us, kids need an incentive not to spend money – like saving for a laptop computer. An additional incentive to set worthwhile savings goals would be to consider matching them dollar for dollar, or a percentage of what they save, for something specific. 

The third is to show them how to shop sensibly. Start with everyday home purchases at the grocery store and then work up to the thrifty marts and department stores. This way they will learn they can get what they want without paying an arm and a leg. 

The third is to open up a current account with an ATM Debit Card component for your teen. In most cases, you’d probably need to co-sign. Every teen should have his or her own account and know how to balance it – preferably as soon as they get a part-time job. It’s amazing that, when they see their hard-earned money disappear with just one purchase, the ‘must-buy’ branded shoe or dress becomes less attractive. 

Fifth skill to teach is the value of compound interest. From little acorns do oak trees grow. Show them how small amounts saved when you’re a kid eventually grow into quite a pile of money. Let them plug in numbers into a compounding calculator such as Kiplinger.com’s How Much Will My Savings Be Worth? calculator or the Savings Rocks page at OrangeKids.com to discover how rich they can become. 

Sixth skill to learn is how not to get into debt. Show them the value and pitfalls of credit. One example is the use of a credit card. In this example, the cardholder owes $2,000 on a card that charges 18% interest. If he or she paid $50 a month, it would take him or her 62 months to pay off the balance and cost more than $1,000 in interest. If he/she didn’t pay more than $30 a month, he/she would never be out of debt. (You can use the Kiplinger.com What Will It Take to Pay Off My Balance? calculator to try out different number combinations). 

And in summarizing, the writer of the article to which I refer made a statement all parents should take heed: “There’s one more thing kids need to know about money that only Mum and Dad can teach: They won’t get everything they ask for.” 

Indeed, for mine, that’s probably the key lesson we need to impart to our kids when it comes to money management.