Saying “money doesn’t grow on trees” and imploring your kids to stash their spare coins in a piggybank is a good start, but your little ones are sponges for information. Take the opportunity to drum good financial habits into your kids early with these tips.
Teach them how money works
Specifically, teach them what they need to do to get money. Think about how your parents did it: you most likely got pocket money in exchange for doing chores.
Kids like being rewarded for their efforts, so explain the concept of giving them a set amount of money on the same day every week or fortnight if they complete a set list of chores. Avoid handing out gold coins for little things – if they’re not going to be paid for it later in life, don’t do it now.
Beyond receiving money, help your kids understand what to do with it. Talk about the importance of spending versus saving, and how much of their money should go to either.
Get them involved
You are your child’s first role model in life. As much as you can tell your child what to do, action speaks louder than words. Involve the whole family in a budget by tracking weekly spending on a whiteboard. If you’ve got teens, encourage them to read their own phone bill and other household bills – like electricity – so they don’t get any nasty surprises when they move out of home.
When you’re taking money out at the ATM, explain that it doesn’t dispense unlimited amounts of cash. If the kids have joined you on the grocery shop, explain how some produce is priced depending on season and how you can find cheaper or more expensive versions of the same product depending on the brand. This will help them understand the real-life implications of money.
Explain the dangers of ‘invisible money’
Many of us grew up watching our parents use cash in transactions, so you could literally see how much was being spent and how much was left. Today, we live in a cashless society so it isn’t as easy for kids to understand what things cost – they may even see a debit or credit card as a magical, unlimited resource.
Teach kids the value of saving up for something and the danger of tap-and-go payments (namely, that they can stack up and don’t always come out of account until later). Showing them the pleasure of finally buying something you’ve worked hard for over time will imbue them with a value for not just money, but work.
Get them interested in investing
Investing is a step up from saving, with two major benefits: kids might better understand your financial choices and it can set them up to make better decisions with their own money later in life. Keep it in terms they can understand (i.e. don’t try to explain the difference between a mutual fund and ETF).
Explain that investing is essentially using the money you already have to make more money. A financial advisor can assist you in becoming a trustee of an investment account on behalf of your children.
Set up a bank account
Lastly, set your child up early. Australian kids can have a bank account in their name from the age of 14, along with a debit card. Most kids will start working at 15 or 16. Until that time, encourage them to deposit any pocket money or cash gifts into their account and withdraw it only as they need it.
Whether you’re looking for financial advice for the little ones or yourself, a Green Associate financial advisor can help. Contact us today to find out more.