Teaching kids the value of money

Question: My child is coming up to the age of 10 and I want to teach him the importance of saving and investing money. How do I do this in an effective way?

Answer: It is very important to teach children early on in their lives the value of money, and the need to invest wisely. Teaching them these skills in an effective manner is the responsibility of every parent.

One of the key ways children's attitudes and values regarding money are influenced is by watching how the adults they have contact with spend, borrow, save, give, and invest their money.

And involving your child in simple financial transactions from a very young age is a good way to get them used to the terminologies of money.

As they grow older and start to understand the impact of money in terms of living the kind of life they want then at this stage children can benefit from being included in family discussions about money.

By doing this they will start to understand how income is used and the financial goals that the family has identified are being worked towards.

Taking a child with you when you visit your independent financial advisor is a good introduction to the types of money discussions they should become familiar with, and confident enough to handle.

You may want to include your child in a discussion about the family's health or holiday insurance, for example, talking through with them the different options for cover and coming to a joint decision.

Or perhaps when you are renewing your home contents insurance you can point out that the policy covers the replacement of their new computer if it gets damaged or stolen.

Once they are older, perhaps in their late teens, you may actually want to go one step further and support your child, with the help of a financial advisor, to invest their own money.

Children often receive weekly allowances or pocket money, as well as lump sum gifts for birthdays and as a reward for good school work, and for completing odd jobs.

A useful idea may be to increase their weekly allowance, but to insist that they invest a percentage of that money into a fund for their university education, rather than you continuing to invest the money for them.

In this way the child will be encouraged to think about the sum of investment towards their education and what it will pay for in terms of where they can go to university - the UAE or overseas - the tuition fees, transport, and accommodation and living costs.

Engaging them in a fixed-term fund, which is directly relevant to their future, is possibly the best way to teach children the value of investments over savings, and the importance of keeping money physically, as well as, mentally separate from their every day finances.

Drawing up a "money plan" that sets out your child's income, including all allowances and gifts, against how much they want to invest, save, spend and give away on the form of gift or charity donations - is also a very useful learning tool.

Whatever the age of your child, it is never too late to help them appreciate the value of money, especially at a time when the economic downturn may be impacting on children who have until now enjoyed a high quality of life.

- Gurnos is a business services director at Nexus Insurance Brokers (www.nexusadvice.com)