Let’s face it – financial literacy in our communities is appalling, and our education systems are not moving fast enough to drive meaningful change in this area. Our children are leaving school with valuable life skills such as knowing the reproductive cycle of a blowfly, but have no idea how to calculate how much interest they could be saving on their credit card, or how to manage their household finances.
If we can’t rely solely our education system, it’s important to recognise that building personal financial knowledge needs to start at home, with the parents. This week we unveil our top 10 tips to teach your kids about money. We hope you find them useful and start to implement some of these simple steps in your own household.
Sit down with your children and help them to create a Budget. This could involve literally using jars / piggy banks to create a save, spend and invest fund. You may want to take this a step further and add a ‘donate’ jar to start developing a sense of community and giving back in your child. The important lesson here is to teach them that they have choices to make when they receive their pocket money, and that each choice is a trade-off. If they decide to spend their money this week buying a toy or a bag of lollies, then that means that they’re going to have less saved towards achieving their longer-term financial goals, which might be buying a new bike or otherwise.
If you have multiple children, you may want to make this a competition between the kids when it comes to how much they’re saving and how quickly they’re achieving their financial goals. It’s likely that the older children will receive more pocket money, so be sure to use percentages, and you may just be amazed how much a little competition between siblings can spur on positive financial habits.
- Setting and Breaking Down Goals
Sit down with your children and start helping them to formulate medium and long-term financial goals. This might be buying a new toy, buying a new surfboard, or upgrading their mobile phone. Help them to not only break down their goals into bite-size steps but to track their progress to achieving their goals.
Once they’ve listed their goals and have designed a way to track them (this could be a piggy bank, chart or spreadsheet) set a fixed time each week or month to sit down and see how they’re progressing to achieving their financial goals. If they’re on track to achieve their goals, let them know and celebrate with them. Reinforcement of positive financial behaviours at an early age can make a significant difference later on.
- Borrowing Money
Whilst your child may not be quite at an age where they’re exploring where they’re going to buy their first home and taking on a mortgage, the earlier you start teaching them about borrowing money the better. A simple idea could be offering them the opportunity to borrow money from you to buy a new toy or waiting until they’ve saved enough. Be sure to charge them interest (at a rate you deem to be fair) and teach them that while they may have fulfilled their short-term desire to have the new toy immediately, they still have to repay this money with interest.
If you want to take this a step further, if they don’t make their repayments on time, explain to them how this might make you (the lender) reluctant to lend them money again. This starts to touch on the subject of credit scores, and explains the responsibility of borrowing money and ensuring that you make your repayments on time. Next time they want a new toy, you may just find that they find it less expensive to simply save up and pay cash, a valuable lesson in life.
- Bargain Hunting
Whether you’re looking to buy a new microwave for your home or your child wants to buy something, teach them the importance of shopping around and finding the best price. Given the rapid growth of technology these days, this can easily be achieved by spending some time online together and searching through the various options. Have them make a list for you and explore which is going to be the best option and why.
This will start to instil the importance of shopping around, and not simply jumping at the first opportunity that arises. With the rapid growth of online shopping, we are seeing significant variance in prices, so it’s a valuable life lesson to teach our children to explore their options. You could also do this at the supermarket when you’re completing your weekly shopping, by comparing brands and different versions of similar products.
- Working for Money
One of the greatest lessons in life that we can teach our children is that to receive money, some form of input is required, generally in the form of work. When it comes to pocket money, set out a list of chores and jobs that they can complete, and outline how much they’ll receive for each. It’s a good idea to outline either jobs that aren’t mandatory, but can be completed if they’d like extra money. This will teach them that there are always ways to make extra money if you’re prepared to put in the time and effort.
You may also want to take the opportunity here to teach them about other ways to make money, such as selling products on Amazon / eBay, freelancing via service websites such as Upwork and other online strategies. Key lessons here can be that time doesn’t necessarily equal money, and that there could be more ‘automated’ strategies to make money while they’re also working.
- Talk To Them About Money
The simplest step to enhance your child’s own personal finance skillset is to have open conversations about your own finances. Discuss bills, your budget, your financial goals, how you set your own budget and other key personal finance topics with them. Creating an openness to discuss such personal matters will not only build their knowledge, but will also encourage them to come to you throughout their lives if they’re ever having financial issues.
Some people prefer to adopt this strategy by having a set evening each week to review and discuss the family’s finances. This could mean bringing out the weekly bills, going over the budget and exploring whether you’re on track to achieving your financial goals. Involving your children in this exercise will teach them that life isn’t free and also encourage them to explore ways that you could save more money as a household.
By raising financially savvy children, you can ensure that they make astute choices throughout their lives and build the financial literacy of Australians around the world.
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