Every parent wants their kids to be financially-savvy. They want to have them set up for financial freedom so that they can live the lives they want to lead. The best way to do this is to start early.
Interestingly, however, while Australian parents know the value of educating their kids about money — 90% said they rate financial literacy as more important to teach their kids than maths, according to new Gumtree research — many (84%) cited barriers to doing it.
So, with that in mind, we asked financial planner Canna Campbell for her top tips on how to teach kids about money. Here, she shares seven ways to start.
Give Them Pocket Money for Chores
While completing chores as a responsibility without the expectation of reward is important for children to understand, the option of a monetary payment system can incentivise them to put in more effort and help motivate them to do the work.
Paid remuneration as an educational system can also assist kids with understanding how money is exchanged for doing jobs, as well as help them gain a greater understanding of time. For example, it may take two hours to clean a car, but that money can be spent in less than a few minutes.
Open Two Accounts for Them
Giving your kids control over two bank accounts, one for spending money and one for saving — or, if appropriate, investing — is a fantastic way to educate them about the importance of financial responsibility.
This helps teach them to allocate a certain sum of money to both accounts each time they are paid — this way, they won’t fall victim to mismanaged finances. They learn about discipline, priorities and as the old saying goes, ‘put something away for a rainy day’.
Your kids can then watch their savings or investing accounts grow over time, whilst also learning how to budget their money in their spending account. This teaches them how to enjoy spending guilt-free and in a responsible way because they value the importance of balance and financial responsibilities upfront.
Set Them Up With Financial Goals and Rewards
Laying out a few simple financial goals for our kids, and giving rewards in return for achieving these goals, can be an enriching educational experience for our children. Write down one or two exciting financial goals for them to work on, with a deadline. Such as ‘to save $100 in your savings account by December 2021’.
Guide them in how much they need to earn and save to help achieve this goal in time as well as give them further opportunities to achieve this goal sooner or exceed the goal.
Also, always set mini rewards along the way to help keep your children engaged and committed to wanting to achieve the goal and learn more about financial education as they go.
Show Them the Value of Research
Nothing says education like directly teaching your kids the ins and outs of financial intelligence, which includes doing your research not only into price comparison, but quality and value for money.
A new flashy toy may look exciting, but when it breaks quickly, that purchase is not only filled with disappointment but is an expensive learning lesson. This is where the beauty and brilliance of trading in the circular economy comes in.
Showing your little ones the value and benefits of the circular economy, where they can potentially purchase the same item but for a much better price or even afford a better quality item due to the savings, can be a really liberating and exciting discovery for our children.
And the ripple effect is that we are showing them how they are helping reduce landfill and assisting another person by giving them money for their goods.
Make Them Into a Budding Entrepreneur
Incorporating the pre-loved economy into your kids’ lives works powerfully in two ways; the first with them as the buyer, and the second with them as the seller. Children should learn about how selling their unused or unwanted goods can help raise funds without having to “earn” money in the traditional sense such as home chores.
Also, the realisation of how items depreciate in value so quickly is an important lesson to learn and the financial assistance of selling unwanted or outgrown toys and clothes, that can then fund the next goal or desired purchase, can not only appeal to the inner entrepreneur but further build on their financial awareness of value and mindful consumption.
Again, this shows kids how to mindfully and responsibly dispose of their items with respect to our planet.
Have Them Invest In Experiences Instead
Our lives are often filled with excessive consumption, such as the latest gadget, new playground trend and new release phone. This is further fuelled by the constant exposure to advertisements.
Sometimes these purchases aren’t great returns on our investment, so showing our children the spending money on experiences (movies, concerts, courses, parks) can not only add greater value to our lives but also helps build valuable memories, that last a lifetime and act as essential building blocks in our children’s growth, development and awareness.
Remember to Go Easy on Them
Financial literacy for anyone doesn’t happen overnight. Take your child’s lead and look for the signs for when they have had enough new information to digest for the day.
Small but regular lessons and conversations here and there, on the go, where you always come from a place of education and empowerment has a powerful effect in the long run.
As our children slowly piece together valuable ideas and understandings from us, this serves them with great value into their adult life for when they have to manage their incomes, budgets, investments and, of course, financial goals.
So, always communicate with your children about the importance of being mindful with money in respect to immediate gratification, long-term goals and sacrifices, and the environment. And, of course, lead by example so that we imprint great financial success and less stress in their financial futures.
Read more stories from The Latch and subscribe to our email newsletter.