A survey by the University of Melbourne How Australians feel about their finances and financial services providers1 asked respondents about their biggest financial regrets. Top of the list was ‘not saving enough’, followed by ‘not investing enough’, ‘not planning enough’, ‘not learning about money’, and ‘spending beyond my means’.
When teaching your children to manage their money, you are helping your kids grow into financially savvy adults. Keep it simple – explain where your money comes from and how it is spent. Remember, children learn best from experience so they will probably follow your own example.
Starting out:
Set up a bank account in your child’s name and explain that if they want to buy something, they must first save the money.
- Explain how interest works and talk about their savings goals. If, for example, they want to buy a new bike, discuss how much it will cost and how much they will need to save each week.
- Encourage them to do jobs to earn their pocket money. This also teaches them responsibility (which is handy when they start talking about their rights!).
- Help them understand that the money that comes “out of the wall” was first put in there through your work. Children of all ages often assume that ATMs supply unlimited cash. When making deposits or withdrawals, show them the receipt and explain how the balance has changed.
As they get a bit older:
- If they have a mobile phone, let them pay for the plan or any excess calls over the monthly prepaid limit from their own money.
- Part-time jobs are a standard way for teenagers to earn money and choosing how to spend it. A debit card on their bank account will give your kids an early introduction to how “plastic” works – particularly when it’s so cool to ‘tap and go’. Except with a debit card, when there’s no more left, there’s no more left. Resist the temptation to top up their account if it hits empty.
- Explain how credit cards work and teach them what happens when the full balance isn’t paid off every month. This is a great lesson in how debt quickly gets out of control.
- Explain the ‘magic’ of compound interest and investing. Show them how to make better money choices by putting aside money for spending and allocating the remainder for saving and investing.
- Allow kids to make their own spending decisions so they learn from their mistakes.
Teaching the basic money facts to your children when they are young will go a long way to setting them on the right path to financial success in later life.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
