Teaching children financial smarts a good investment

The UAE has a commendably business-friendly and entrepreneurial culture and yet like most countries it generally misses the trick of catching youngsters when they are most impressionable to give them a sound financial eduction.

It is not an original idea to call this innovation. Anybody familiar with Robert Kiyosaki's Rich Dad, Poor Dad book series, will have read all this before.

A report in The National last week about an hour-long financial literacy course run by Kids Finance Initiative on Saturday mornings in Dubai for two age groups, 9 to 11 and 12 to 14, caught my eye. The eight-week course for Dh640 looked like a great investment in the young minds.

I was lucky to be born in a business family. My parents were both start-up success stories, and I learnt everything around the kitchen table. When my school took us to visit a local bakery I asked how much it cost to make a bun and went back to tell my dad. “Son, that is called a profit,” he explained.

Not everybody can start this way. But instilling the basics of financial common sense in the young is a good idea.

For example, the simple principle of good and bad debts. A bad debt means that you get a product earlier than saving up for it but end up paying a lot more for it.

A good debt like a mortgage will enable you to live in a house and buy it at today’s price without having to put up the full amount. Rising house prices may make you rich over the long term.

That is already a little complicated for the first grader. How about how to open a bank account and download the iPhone app? What services do banks offer? And how will they try to take away your money if you let them?

Managing your pocket money is a very good way to appreciate how to handle much larger amounts later in life. The world’s second richest man, Warren Buffett, did just that.

An interesting case study would be to ask what would you do if you won a lottery? I did win the Premium Bonds in the UK once as a child, and can still remember the thrill of being able to buy anything in the toy shop.

In the end I decided to spend half the money – and half of that on my brother and sister to keep them happy – and reinvested the rest in Premium Bonds, money I never saw again as the certificates got lost.

Credit cards alone would definitely be worth a one-hour lesson. What does a credit limit actually mean? Where does the money come from? Is it for free? How is it different from a debit card?

Years ago the head of a UAE credit card company told me his firm was making a fortune out of people who did not know the difference between a credit and debit card. Think of all that interest paid on cash withdrawals on a credit card.

It is by getting the basics right early on that consumers will also become sceptical about the claims of financial fraudsters and charlatans.

How was it that so many airline cabin crew in the UAE, usually bright and well educated, fell for a foreign exchange scam recently that was offering to double their money in a short period?

Anybody with half a wit might ask: “well, how are they going to do that legally?” For older children some cautionary tales of the great financial fraudsters of our time would make an interesting end to any course in financial education.

How does a Ponzi scheme work? It sounds like a mathematical puzzle but really only amounts to paying winnings out of early receipts to encourage greedy people to invest.

These were not things I learnt about as a child, but the world was a much simpler and more honest place then – or was it? Human nature does not change very much over time.

Kiyosaki's Rich Dad, Poor Dad books take this basic financial education a step further with the rudiments of capital accumulation and entrepreneurship.

That’s the point really, this is just another step on the same ladder of financial success. But you need to get your foot on the ladder first, and that is probably best achieved by financial education at a rather tender age, in my humble opinion.

Peter Cooper has been writing about finance in the Gulf for two decades.

pf@thenational.ae

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