How to Teach Your Kids Good Money Habits
Most parents want their children to do well financially and eventually achieve the great Australian dream of home ownership. The good news is that you can play a key role in making this happen simply by teaching your kids the basics of finance and instilling good behaviours that will last a lifetime.
Start from a Young Age
Children are sponges when it comes to learning, which is why starting their financial education from a young age makes perfect sense. Even in their earliest years, taking them shopping and paying for items with cash can allow children to quickly learn the basics of commerce and money handling. In an age where we tend to use cards for most of our transactions, it is also important children learn at an early age that the card is purely a vehicle, and that money must go in, in order for it to come out.
Saving, Budgeting and Spending
As children get older parents can explain to them the concepts of saving and budgeting. This will help them understand how to save for something they really want. Involve your child in opening a savings account in their name, and making regular deposits with their pocket money. Recommend they have a savings goal in mind and explain how their balance will grow over time. It’s also a good idea to talk about budgeting, because invariably they will be spending money at some point. A good strategy is to take them on a ‘financial tour’ of your home, showing them what particular things cost, including invisible items such as electricity. Show them the bills you receive for each, and detail how you budget for them from your own income.
The power of compound interest is one of the most valuable financial tools children can learn. Finding out that their money can be used to earn more is a fascinating concept for most children – especially when they realise it means they don’t always need to do more chores to get extra money! Use calculators, such as the one available at ASIC’s MoneySmart site, to show them how much they can save using a long-term strategy.
Allowances and Jobs
Pocket money is usually the first form of income for children and it is important that children learn the concept of working for their money. Helping them to save some of this will set them up in good habits once they start working. Encouraging children to get a part-time job once they’re of an appropriate age also helps instil a good work ethic that can be carried forward into adulthood.
Financial Transparency and Investments
Older children can further improve their financial literacy by learning more about financial basics. This can include teaching them about how a mortgage works and what happens in general with property prices, as well as the basics of the financial markets. The more they learn, the more their confidence and experience will grow.
Being transparent and providing financial advice gained from your own experience will be invaluable to your children. Remember though, children usually follow what parents do more so than what they say!
When your child is ready to purchase their first home, talk to us about how we can help.