“I just negotiated to reduce my bill by US$20!” shouted Gayan excitedly.

Her smile shone brightly not just because of the rows of metal on her teeth, but also from her pleasure in successfully making a deal to save money. I looked up in amusement, wondering what on earth a 14-year-old kid knew about the art of negotiation.

I turned to her mother, Andrea Reid-Davis and asked her what kind of negotiations her daughter was involved in. She noted that Gayan had just bargained with the orthodontist’s assistant to cut her bill for fixing her damaged braces.

Reid-Davis explained that because Gayan kept eating the wrong foods, she would regularly break the bands on her braces. To ensure that Gayan realized the consequences and costs of her actions, the smart mother decided to have Gayan pay the bills from her savings.

Reid-Davis pointed out that both Gayan and her 18-year-old sister Gabrielle were already financially savvy and knew not just how to save money, but how to creatively earn it too. She then went on to share several anecdotes of just how money-wise her children were.

Here are some of the clever techniques that Reid-Davis, a realtor and shrewd money manager herself, has successfully utilized to educate her children about money:

The Art Of Saving

Reid-Davis’ quest to educate her children about money began one day when Gabrielle was only six years old. Hearing her mother mention that she was short on cash, the generous child offered to share her savings with her. Gabrielle pulled out some paper money from her piggybank and proceeded to tear it, handing her mother ‘half’ of her money. “I was scared that she didn’t understand the concept or value of money,” Reid-Davis noted. “I wanted to teach her more about money, but I wasn’t sure how to do it.”

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Her opportunity came when she realized that the school savings programme at the girls’ prep school was having a negative effect on them. Reid-Davis explained that the children had to line up every week and hand over their savings to the teacher, who would make a record in a notebook. “Gayan used to complain that she didn’t understand why the teacher kept taking away her money,” Reid-Davis recalled. “There was no association between the collection of money and what happened at a real bank.”

With the school’s permission, she decided to take over her children’s savings plan by giving them their own notebooks which were ruled up like bank books, and having them write down their savings figures every day. At the end of the first month, they carried their funds to a bank and opened accounts. “At that time, children could not have their own bank accounts,” she noted, “but I asked them to put my daughters’ names on the accounts and the representative let them sign some pretend documents.”

The money for saving was included in the girls’ lunch money, as they would tell their mother the cost of the meals they liked, and then Reid-Davis would add a savings amount to their allowance. They knew that every week they were required to put aside their savings portion. “They were very excited when they received their quarterly bank statements,” she recalled, “as they looked forward to seeing their money grow.”

Investing Money

Reid-Davis explained that she taught her girls that saving regularly was only the first step towards achieving goals, and that investing money for growth was also very important. “Their major savings goal was to put aside enough money until they could purchase US$100,” she revealed. “Whatever money was left over after the conversion I would let them use to reward themselves with a treat like ice cream.”

This savings cycle continued until they have enough money to open foreign exchange accounts at a financial institution that pioneered Money Market investments. Reid-Davis has also taught them how to choose alternative investments which can provide higher returns.

Setting Goals

Reid-Davis confirmed that the most important thing that she has passed on to her children is the value of setting goals. “Each year, they decide what their objectives are for the rest of the year,” she said. “The girls make their own decisions which they share with me.” She confirmed that this allows them to make a connection between what they want and the strategies required to accomplish their goals.

She recalled when Gabrielle wanted a cell phone in first form at high school. The plan was to save until she had accumulated 50 per cent of the cost, and her mom would match her savings. Because this goal was in addition to her regular savings, it took her one entire year before she had enough money. Reid-Davis noted that Gabrielle took very good care of her phone because of the sacrifice involved in getting it.

Next week we will continue looking at how this smart mother taught her children to manage money. Find out how they earn money by taking advantage of opportunities and solving people’s problems.

Copyright © 2007 Cherryl Hanson Simpson. No reproduction without written consent.

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Originally published in The Daily Observer, September 20, 2007

Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl