Continued from Teaching financial education to your children – Part 1
ADVANCED LESSONS
The simple lessons mentioned previously will provide the perfect start in life for young children. However, the world is far more complex than that and as the children get older, some more advanced financial lessons should be given.
Probably the perfect time for the introduction of further lessons would be as soon as the children reach high school. At this stage, their spending demands increase, as they want mobile phones, iPods and a wardrobe full of label clothing. What better time can there be to teach them that they can’t always have everything they want in life.
BORROWING ON INTEREST
Quite possibly the reason behind all of the world’s problems, interest lending is a danger that children must become aware of. It has been responsible for the financial ruin of millions of people worldwide, and some countries and empires too.
Without being warned about the dangers of borrowing of interest, your children are likely to rush out and get a credit card or car loan as soon as they turn 18. This is where many of them come unstuck, as they are unable to meet small payments such as these and their debts balloon out of control.
Highly successful personal coach Tony Robbins tells a great story about how his parents turned him off alcohol. Growing up and watching his dad drink beer every night, Tony was keen to be like his dad and start drinking alcohol as well.
When he was around 12 or 13 years old, his parents gave him a beer on the condition that he would keep drinking even if he didn’t like it. Wow, that seemed like a great deal. But the taste disgusted him and his parents wouldn’t let him break the deal. The end result – he vomited everywhere and this bad experience turned him off alcohol for life.
Similar to this example, parents should expose their children to interest by lending them money to buy the items they want. The interest rate could be set at 10% per week, meaning a $100 loan would have to be paid back by the end of the week with $110. If the loan remains unpaid, the 10% interest rate per week will ensure that it quickly rises in value and they pay a lot more for their $100 purchase.
Each loan should be tallied separately for the calculation of penalties. If a particular loan spirals out of control and reaches double its original value, a penalty should be introduced to teach them what a debt collector could be like when they repossess your goods.
If the child has a number of personal possessions, these can be taken until they get the loan back under control. Taking away their television, video game console, computer, iPod or mobile phone will have a great effect and ensure that they work hard to pay off the debt. If personal possessions are lacking, they could be grounded from going out to movies or playing sports, or even sent to bed early and prevented from watching TV.
Whatever system you choose to implement, remember to set the interest rate high enough to have a real effect and teach them the bad points of interest based borrowing. Also make sure that the penalties are tough enough to scare them from defaulting on their loan payments. Hopefully these lessons will teach them to save for the items they desire, rather than rushing out and borrowing instead.
SUPPLY AND DEMAND IN THE WORKPLACE
In the case where there are multiple children, it is quite possible that there are not enough household jobs to spread around between them. This is a perfect opportunity to teach some basic economics and allow them to learn about supply and demand.
Each household job should be put into the open market and allow your children to bid for each job, trying to secure the work for the lowest amount ahead of their siblings. Just like the real world, if they demand a wage that is too high, they might find that the prospective employer finds someone else of equal ability who is willing to work for far less.
Of course, they will also learn not to bid so low that they are working for peanuts, with it highly unlikely that they bid doing the dishes down to 5c. However, when desperate times strike, some of the children may try and take all of the work by bidding very low amounts. This shouldn’t be discouraged, as it will provide a good lesson to the others that sometimes the jobs in western countries are given to people in emerging economies.
BUSINESS INVESTMENT
Apart from the standard business opportunities mentioned previously such as raising chickens or growing vegetables, the children should be encouraged to think of and start their own small businesses.
Every now and then we hear of a young child who has started a business at home and has become very successful. It is certainly possible that your children can do the same thing with a bit of encouragement and assistance.
One area you can help is in providing the finance to get a potential small business off the ground. Unlike the interest lending mentioned above, the loan should be interest and risk free, similar to how an investor will invest into a business.
When providing the funds, a percentage of business profits should be agreed upon as your payment. If the child wants you to play a role in the business and help with a particular aspect, the percentage of profits you receive should be increased. Plus, if you ever want your money back, allow the children to buy your percentage share in the business.
CONCLUSION
The introduction of these life lessons are of critical importance and will teach essential skills for coping in the real world after school. Your children will surely thank you in the future for providing them with these valuable life skills and giving them a head start in life over their peers.