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Financial intelligence – the ability to create, allocate, deploy and revise allocations –gives you more than just a healthy bank balance, it teaches you resilience. Image Credit: Shutterstock

A healthy relationship with money begins as other healthy relationships do: with a solid foundation and communication. “The most common mistake that many make is not talking to their children about money at all. Most will tell their children ‘not to spend all of your money straight away’ and pretty much stop there,” says Simon Wing, co-founder and CEO Edfundo, a UAE-based money management app created by teachers for students.

But financial intelligence – the ability to create, allocate, deploy and revise allocations –gives you more than just a healthy bank balance, it teaches you resilience. And that learning can begin as early as during toddlerhood.

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Lessons to teach kids

Wing suggests that age-appropriate systems are created in every household to drill home certain points. He says: “One of the most important concepts that people should know about money is the difference between assets and liabilities. Many people end up spending a lot of their money on liabilities such as cars, holidays and eating out instead of investing in assets such as passive stock investments, investments in businesses and investments in real estate. Assets can make your money work for you instead of you working for your money.”

Kids need to learn, he says:

  • When they are young: The difference between needs and wants
  • When they are young teens: Budgeting and cash flow
  • When they are older teens: Compound interest and investments

Asma Geitany, Child, Adolescent and Adult Clinical Psychologist at Dubai-based Openminds Centre, says when teaching children about financial acumen, begin with shapes. “It can start as early as two to three years of age by introducing different money shapes, by explaining how patience is sometimes mandatory to get what you want.”

This can evolve into learning about the stock market at teen-hood.

Try making learning fun, she adds. “Methods that can be used to teach financials to kids include:

  • Playing board games, which involve an alternative to real money (like the famous Monopoly)
  • Giving age-appropriate allowances
  • Teaching savings or practicing money exchange (i.e. while purchasing groceries, getting involved in some house-related purchases or by creating the culture of saving accounts by giving them a coin bank).”

While engaging in a daily system of saving versus spending, kids will learn not only about growing cash but how to deal with loss. Parents must, says Geitany, shadow their children’s transactions, so in case something goes amiss, they can have a safety net, some kind words and a space to reassess their actions.

“The last component for a good financial education, is being a role model: children must see their parents being able to deal with money, able to save, and able spend money maturely,” she adds.

Anna White, Sr. Occupational Therapist, Mental Health First Aid Director at Lighthouse Arabia, suggests the following tips to get you started:

Start early: Many experts in this field recommend parents begin financial education when their children become teens. I encourage you to start financial literacy as early as five years old. Children who begin to practice the basic concepts of counting, saving and spending have more time to practice and master these skills.

Growth mindset: Support your children in understanding the power of growth and failing forwards. When you challenge their experiences after they make a mistake, you will help them develop coping and problem-solving skills. Instead of jumping in and fixing the problem, be curious and ask your child what they learnt from this? What could you do differently next time?

Disconnect money from magic: We want our children to live in a world of imagination, magic and wonder, but we need to separate this from money. How wonderful is it to see your five-year-old’s face when they find dirhams under their pillow in exchange for a tooth? It’s probably the same look of surprise a 40-year-old might have if they found a new Ferrari in the driveway. The message here is to minimise the connection between magic and money. The next time the tooth fairy comes, put a ticket to the museum of the future or an adventure park under their pillow.

Practice financial skills daily: Parents can incorporate financial lessons into their everyday lives. For instance, giving your child a weekly allowance, encouraging savings, creating opportunities to earn money, or showing them the value of giving. As parents, you need to lead by example and model healthy financial behaviours but also show them how you problem-solve when things don't go to plan.

This is particularly difficult, because often, we aren’t well versed in money management ourselves. Marilyn L. Pinto Rebel Educator and Founder, Dubai-based financial education firm KFI Global, says. “Most of us aren’t trained in financial education ourselves, we really don’t have the time or the bandwidth to teach our teens about money in addition to everything else on our plate, and because of a well-documented occurrence called ‘proximity bias’, our teens don’t really listen to us,” she says.

What is proximity bias?
Proximity bias refers to some tasks or people getting preferential treatment because of their physical proximity to those in charge.

Pinto offers the following tips to get kids comfortable around cash:

Normalise talking about money. In many cultures, this is considered taboo but it’s time to break out of these constraints. It also helps enormously if both parents share the money talk responsibility, and that this isn’t just left to the dads, as is usually the case. This demonstrates to them that money isn’t solely a man’s domain.

We should talk about the financial decisions we’ve made both good and bad, so they can learn from our mistakes without paying the price. We could also get them involved in the family finances whether it’s planning a family holiday, buying a car or paying their school fees. Doing this will instil in them a healthy respect for the money we spend on them, while helping them understand the intricacies and emotions involved in financial decision making.

Help them cultivate a healthy money mindset. A money mindset is the way they think about money, their overriding attitude toward managing their finances.

Are they fearful? Embarrassed? Wilfully ignorant? Or are they free from limiting beliefs, eager to learn and excited about the opportunities that lie ahead.

This oft-ignored aspect is a critical component of financially empowering our teenagers. As American author Tony Robbins says: ‘Learning a new skill is 80 per cent psychology and 20 per cent tactics.’

The money mindset our teenagers have will drive how they make key financial decisions every day. It also has a huge impact on their ability to achieve their money goals.

Help them practice delayed gratification and impulse control. These two inextricably linked concepts underpin all teachings in personal finance and are essential for teens to master if they are to be fiscally responsible.

Training our teens to resist temptation and hold out for a better reward in the future is a skill worth cultivating and not just for better finances. This skill of delaying gratification has shown to directly correlate to better academic performance, higher paying jobs, better health, and more successful relationships.

And this is a learned behaviour, it’s not genetic or pre-determined so practice makes all the difference.

Impulse control is equally important to cultivate. Understanding what impulse buying is, why teens are so susceptible to it and how to control it is another key issue we need to talk to them about.

In the end financial health boils down to three things: education, effort and resilience. The good news is, you can build financial health and in doing so, build resilience.