Raising kids is rewarding but it brings plenty of responsibility. In just 18 years, you will have guided your child through toilet training (thank goodness those days are over!) and tying shoelaces to driving a car.
So it can seem like a big ask to also teach your kids good money habits, but it’s a case of ‘learn now or pay later’, which translates to: if your kids don’t learn they may never move out!
Research shows that the way we handle our finances as an adult is strongly influenced by our childhood experiences with money. The reality is that we teach our children plenty about the world just through our own behaviour.
A study by Cambridge University found that children’s basic attitudes to money are formed by age seven. Scary, huh? It happens because they closely watch and listen to their parents, soaking up plenty of information about money, how it should be handled and its impact – good and bad – on our lives. Psychologists call it ‘behavioural shaping’ and it can have a lasting impact.
The trick is not to stress over what you’re saying about money in front of the kids. Sure, waving the credit statement at your other half while you yell, “You spent how much on those new golf clubs?”, won’t help. It’s more about having conversations that encourage your kids to have a positive attitude towards money.
The money conversations around our house cover everything from the latest electricity bills (my son has been known to tell guests to switch off the bathroom lights), to credit cards versus debit cards, to super (relevant when my daughter got her first job), to the cost of their education.
Something as simple as chatting about your grocery budget while you’re out shopping or helping them plan for the next family holiday can be a great way to engage children.
The best savings tool I have given my children is slapping their name on a tomato paste jar and calling it the 52-week challenge. You start by putting away just $1 in the first week, and then gradually increase the amount by $1 a week throughout the year. So you save $2 in week two building up to $52 at the end of December. If you complete the challenge, you’ll have saved $1,378.
The deal was that I would match the savings for the child who met the challenge. Thankfully, only one out of the two managed to complete it. The young one found it a little too hard to come up with the bigger dollars needed.
We live in a digital world, which can make things a little tougher. Many of your kids’ purchases will be ‘invisible’. Then there are things like Afterpay and Zip Pay as they get older. Explain how these buy now and pay later services work and how they can encourage you to spend more without you realising.
Valuable money lessons for all ages
Where do you start? I remember someone once saying that when your child first shows an interest in books, you don’t start by giving them War and Peace, and it’s the same with money. Here are some age-appropriate tips:
Preschoolers (3-5 years)
- Play shop using pretend money so they understand the concept of trading money for goods.
- Explain where money comes from – for example, you are paid for working.
- Describe what $2 or $5 actually buys.
- Let them practise putting away their money in a piggy bank.
- Give pocket money as a combination of notes and coins to help to familiarise kids with the different denominations.
- Set up a savings account specifically for them. Explain that they’ll be paid extra money (interest) by having their money in an account.
- Talk to your children about the difference between needs and wants, and how they can budget their money based on these.
- Teach kids to compare prices when at the shops or to look at catalogues before buying something.
- Encourage them to set savings goals and explain how long it will take to achieve them. If they want a toy worth $25, explain that if they save $1 a week it will take 25 weeks. Consider using a chart so they can see their progress.
- You might offer to match their savings to give them an extra incentive to save. For every dollar they save you might opt to match it with 50c or even $1.
- Teach them about the importance of giving to help those in need. You might start with giving away toys they no longer play with before progressing to money.
- If you’re buying an app on a tablet, don’t just put in the password and let them have it. Explain that it is real money and give them an idea of what that could get them in the ‘real’ world. You might even ask them to pay for it with their pocket money.
- Show them what bills look like and how you plan to pay them.
- They may not be able to get a ‘proper’ job but encourage them to find ways to make some extra cash, like walking the dog or washing the car.
- Explain the concept of credit and borrowing money. If they want to buy something they can’t afford, consider lending them money and getting them to pay you back. You can even set out a repayment schedule.
- Teach the basics of the sharemarket. You can pretend to invest in companies and then watch how they perform.
- Get them to put their own money towards an iTunes voucher. They will then spend their own money for apps or songs. This will make them think twice before buying something.
- Encourage them to get a casual job.
- If they are earning money, make them responsible (or at least partly) for some of the bills you may have been taking care of for them. For example, maybe they need to pay for their own mobile phone or for buying gifts for friends.
- Once they have built up some savings, they can begin to invest. You might start by investing in an ETF, managed fund or buying a small parcel of shares in a company they have heard of. Be careful about whose name you invest in as there could be tax implications.
- Talk to them about buy now and pay later schemes such as Afterpay and Zip Pay. Explain how they work and encourage them to do the opposite and save for what they want.
This is an edited extract from A Real Girl’s Guide to Money: From Converse to Louboutins (Bauer Books, RRP $24.99) by Effie Zahos.
Cover image source: Liderina (Shutterstock.com)
The comparison table below shows some of the savings accounts on Canstar’s database for a regular saver in NSW. The results shown are based on an investment of $100,000 in a personal savings account and are sorted by Star Rating (highest to lowest), then provider name (alphabetically). For more information and to confirm whether a particular product will be suitable for you, check upfront with your provider and read the Product Disclosure Statement or other terms and conditions before making a decision.
About Effie Zahos
Canstar’s Editor-at-Large, Effie Zahos, has more than two decades of experience helping Aussies make the most of their money. Prior to joining Canstar, Effie was the editor of Money Magazine, having helped establish it in 1999. She is an author and one of Australia’s leading personal finance commentators, appearing regularly on TV and radio.
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