Having children can be one of the most rewarding (and sometimes challenging) experiences of your life. As a parent, it's your job to teach your kids about right and wrong, values, manners, morals, personal safety, keeping healthy, and personal accountability. Interestingly however, many Australian parents leave out one of the most important survival skills their children will need - how to take care of themselves financially.
Basic skills in earning, spending, saving, and investing can affect how your kids live now and in the future. Teaching your children the value of money will help them throughout their lives.
Firstly, you need to explain the concept of money. Show them cash, coins and cards, and explain that money is exchanged for goods and services. Use examples they can relate to like grocery shopping or haircuts.
In this age of digital banking, it can be difficult for children to understand the value of day-to-day transactions because they don’t see any physical cash being handed over. One way to help children understand the impact of this is to explain how much you're spending at the checkout, and then show them what this looks like in your online banking or mobile app. They’ll see how much money you have and what it means your balance when you spend money.
Tied in with this, is helping your children learn the difference between needs and wants or necessities and luxuries. Ask them to list the things they need and the things they want, and then review it with them. Try it again the next time you go shopping together, and ask them to pay attention to the cost of the things they have on their list – which items are most expensive, their wants or needs?
Depending on their age, it’s a good idea to establish a daily/weekly chore for your kids that is linked to earning pocket money. Carrying out a small job or two around the house like watering the plants, filling the dishwasher, or setting the table, demonstrates that money is earned and doesn’t grow on trees.
As they get older, these jobs can get bigger – along with the amount they receive – and can even encourage them to get a job, such as a paper round.
Giving children the skills to control their finances is not only beneficial to their long-term financial wellbeing – it also contributes to their self-development. It may not be easy to begin with, but once your child has earned some money, allow them to make some of their own spending decisions. Whether these are good or bad choices, your kids will learn from them.
Remember, when it comes to spending wisely, you need to lead by example. Encourage your children to shop around for the best deals, look for good quality products that will last, and even wait for some items to go on sale.
Understanding savings and the benefits of saving money is a vital skill for a child to learn. Whether you choose to use the old-fashioned piggy bank, or a dedicated bank account, encourage your children to save by helping them set out some savings goals - those 'wants' and 'needs' from earlier will come into play here too.
At the beginning of your child’s saving journey, you may find it beneficial to provide an extra incentive, and offer a small bonus when they reach their initial savings goal.
By utilising the 50/30/20 technique you can easily teach the importance of managing money in a responsible way. As their money grows and your kids start making responsible spending decisions, you can continue their education by exploring charitable giving, borrowing and investing.
Teaching your child about interest early on, will put them in good stead for life as an adult. Don’t just focus on the interest that their savings can earn though. If they borrow money from you, charge them a small amount of interest on their loan, and explain about the interest that is added to credit cards and larger loans like a mortgage. You could even ‘borrow’ some of their own money, and pay interest on it so they see their money grow first-hand.
For teenagers who have mastered the concept of saving, you may even want to consider setting up a trust in their name through which your child can invest some of their savings in a managed fund or shares. This can be a daunting task for a parent though, so you may find it useful to talk to a financial advisor about the various ways this can be done first.
Once your child understands the value of money, it will be easier for them to understand charitable giving. See if there is a charity that they feel connected to and encourage them to donate to the cause. You can teach them about one-off donations and regular giving.
When it comes to educating your kids about money, the important thing to remember is not to be afraid. The lessons they learn in childhood will stay with them for life, and learning from your lived experiences – whether good or bad - will help them and their future financial well-being.
Have you heard about our Way Cool Saver account? It's specially designed for kids under 15 and helps them start on a regular savings plan. With no account fees, no minimum opening balance, and no minimum monthly deposit required to earn interest, it’s an easy-to-understand account that will get your kids off to a great financial start.
Banking and Credit products issued by Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. Any advice does not take into account your objectives, financial situation or needs. Read the relevant Product Terms and Condition, before acquiring this product in considering and deciding whether it is right for you. The Target Market Determination (TMD) for this product is available on request.
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