Teaching your kids about financial independence should be done sooner, rather than later. It’s never too early to provide your kids with the knowledge, experience and planning to set them up for a more secure and successful financial future. As it’s getting more and more challenging to enter the property market, it’s never been more important to raise financially savvy children.
Personal finance is rarely taught in the classroom. According to the Organisation for Economic Co-operation and Development about one-fifth of 15-year-olds lack basic financial literacy,. While schools are starting to implement a better approach to helping prepare our children for the real world – it’s something that you can help teach your children too.
Don’t miss the early boat in teaching your children the basic principles of money management such as budgeting, spending and saving.
Let’s look at some of the best and most practical advice to help our kids become financially savvy.
The younger you start talking to your children about money the better. It’s important to explain to your children where money comes from – money is earned, not given – to help them gain a greater understanding of the value of money as they get older. Encourage them to understand the concept of money by allowing them to help you pay with cash or card at the supermarket.
Explain the difference between wants and needs
One of the first steps to teaching the value of money is to distinguish between want and need. Explain that ‘needs’ include the basics such as shelter, food and clothing, and all the rest are ‘wants’. You can also explain what opportunity cost is – e.g. “If you buy this t-shirt, you won’t have enough to buy that video game.”
Use pocket money to build good habits
Start a weekly allowance – you’ll need to decide whether this should be tied to household chores or as a teaching tool with no strings attached. Let them earn their own money as this provides them with the opportunity to learn how to use it and take more control over their spending.
Teach the three principles: giving, spending and saving
When you’ve got pocket money in the works, it’s the perfect opportunity to teach your kids the different uses for money – giving, spending and saving.
Our Founder/Director Brett Wadelton recently had the opportunity to discuss this with his first born who recently secured his first job as a qualified basketball referee. “When he received his first pay, we had a discussion around what to do with the money. I explained the concept of splitting his earnings into three. Together, we’ve agreed to put a third in savings for large purchases, a third can be used as spending money and the remainder will be put towards fundraising,” says Brett.
“Next year, my son is going to East Timor on a school trip to assist the underprivileged. As a part of this program, each child needs to raise $250 to give to the local community. It’s great that he now has the opportunity to put some of his own money away towards this experience,” Brett stated.
Set up a fee-free bank account
Give them the responsibility of a bank account. This takes money management to the next level and hopefully will prepare them for managing an account when they are older.
Let them make mistakes
At some point in time, your kids will make mistakes – and that’s good. If they want to splash all their cash in one-go, let them, and they’ll soon learn the importance of budgeting. It’s better that they are making and learning from these mistakes when they are young and in the family home, and not when they are in their twenties trying to buy a house.
Teach the importance of price comparison
An important lesson that children need to learn is price comparison and smart spending – show them the importance of shopping around for similar products at different stores.
Encourage them to get a first job
Working is one of the main ways a teenager can gain a true appreciation of the value of money and become more financially aware. Not only does a job help learn the money management basics, but it’s also a great way to instil a strong work ethic, build responsibility and gain independence. While part-time jobs may come at the cost of parents’ time (with the extra transport responsibilities), the benefits outweigh the negatives.
Set goals and start saving for the future
There’s no time like the present to have your teenager start saving for the future. Set some time aside to discuss and set goals for their future such as for a house or car. Using the three principles, insist that they take a portion of the money from their job goes straight into a dedicated savings account that they don’t access and keep separate from their spending money.
Teach them to always read the fine print
As teenagers grow older, the new independence is new and exciting. Teenagers are likely to make some decisions without thinking about repercussions when it comes to things such as credit cards and mobile phone contracts. Ensure that they read the fine print of all contracts and understands that certain debts can affect credit ratings no matter how “amazing” a deal may sound.
Teach them how to invest
Introduce them to the magic of compound interest. The earlier the teen can start investing, the better. Putting away a bit, over a long time is the key to building wealth – they’ll get a head start for the future!
What financial concepts do you want your children to fully grasp? Let us know so we can help provide even more resources to you.