Parents across the nation are readying kids for their return to school. It’s a good time to start looking beyond the lunchboxes, uniforms and classrooms to prepare kids for their future, People’s Choice says.
“Money has become an unseen commodity as our society has embraced online and digital transactions, and parents are no different. School excursions are paid through transfers, books are ordered online and even the weekly shop is more likely to be ordered online for easy delivery,” People’s Choice Financial Planning’s Lisa Jones said.
“Money is invisible to today’s children. They are less likely to set foot in a branch or handle cash unless it comes in a birthday card from an older relative. There is a risk our ‘tap and go’ lives can make money seem like an endless magical commodity. We need to teach kids about money from an early age to avoid financial difficulties later.”
1. Knowing the cost of credit
“Not seeing money exchanged for goods can give children the idea that money is unlimited with no difference between savings and credit. It is important that children understand the cost of making purchases with borrowed funds,” Ms Jones said.
“As anyone who has bought a house knows, borrowing money is a big part of life, but financially wise people know that not all credit is equal. An understanding of what interest is and the different type of interest is an important lesson to teach when the time is right.
“Once a child has an understanding of basic finances such as earning and saving, you can talk to them about credit and use an online calculator to demonstrate how interest is charged and what the real cost of a purchase is when bought on credit.”
2. Working for it
“Adults know that money doesn’t grow on trees, but credit cards, EFTPOS facilities and fast money services can give young people the impression that money is easy to come by – a thought process that might lead to debt as they get older,” Ms Jones said.
“Associating pocket money with chores is a good way for kids to understand that money has value, that it is something earned and that it is limited. In turn, this will help them understand that they can save towards a goal and that their spending decisions have repercussions."
“Part of letting them work for their money is also letting them use some of it for small expenses so they can see how far their money actually goes.”
3. Learning together
"Many parents shy away from teaching their kids about money because they doubt their own abilities – but that alone is a good opportunity to learn," Ms Jones said.
“Parents still have the biggest influence on the way their children develop their understanding, habits and attitudes towards money and finances despite the fact that 40 per cent of adults are willing to admit they need to improve the way they manage their finances,” Ms Jones said.
“Making money a part of your everyday discussions, teaching the value of saving, budgeting and hard work, and learning together is important for young people to understand how items purchased digitally were paid for."
“Parents often feel awkward talking to their kids about topics they are uncomfortable with but learning something new together can be a rewarding experience. Not only are you giving them the gift of financial literacy that will set them up for life, you are also teaching them to be open to new learning experience no matter how old they are.”
4. Saving and budgeting
“If you want to be financially successful or have financial security in life then you need to learn to budget and save,” Ms Jones said.
“When you consider that a lot of banking changes taking place in Australia at the moment are centred around making sure the consumer has a strong savings history before they can get a loan, then teaching children to save and budget is vital if they are ever going to be able to borrow money for a car or a house when they are older."
Try splitting pocket money into three parts:
- money for now,
- money for short-term savings goals, and
- money for long-term savings and emergencies.
“Once a child is ready you can sit with them and use an app or online banking associated with their savings account to teach them to control their savings. This will let them see their money and learn that it isn’t endless.” The People's Choice Internet Banking and Mobile Banking App is a great place to start.
5. Give them the tools they need
“Our kids live in a digital world so we need to make sure they are aware of the technology that will help them stay financially in control,” Ms Jones said.
“For teens, online budgeting tools and apps like our online calculators can help them plan for long-term savings goals, and most Internet Banking and Mobile Banking Apps will help them take responsibility for their finances. They can also get some handy tips from the Government on the MoneySmart website."
“For younger children, digital technology like smart watches and fitness trackers can be a fun way for them to learn the values of work, exercise and reward. The Garmin fitness tracker for example, has a game-like app that can be installed on a parent’s phone that lets parents and kids set and track agreed-to goals for things like household chores, homework and fitness goals, all of which can earn the child virtual rewards. The kids can set reminders and timers on the fitness tracker, use the tracker to mark off their completed tasks and at the end of the week they can redeem their rewards for pocket-money or an activity.”
6. Money as a second language
“We want money to be a second language for young people so they are equipped for life. But a second language is of best use when it’s understood and spoken well,” Ms Jones said.
“Too often the only language kids hear around money is negative, whether it is a parent worrying about paying the bills or being told they can’t have something because they can’t afford it. Change the language, explain the why and teach them about how you make decisions."
“Language around money for young children should include explanations about the difference between a need and a want, savings, budgeting, affordability and waiting. Talk to them about setting goals and saving towards those goals, have them help create shopping lists to fit in a budget and get them to do the math with you on shopping trips."
“As they get older show them how you can research the price of an item online to get the best deal and talk to them about internet security when spending money online. Retirement, superannuation and tax are all realities kids will have to deal with and plan for at various stages. The more they hear and learn about these aspects of life, the better they will understand and be prepared for them.”
7. Make it fun, interactive and achievable
“Make learning about money fun and hands-on, use the technology that kids engage with and ensure the goals you set are attainable and that rewards are given,” Ms Jones said.
“This is the best way to encourage kids to engage with what you’re trying to teach. Being money-wise is a lifelong journey so what you pass on needs to be achievable for both you and your child.”
For help on how to plan for your kids' future, check out our Financial Planning and Advice.