Follow the leader
Like it or not, a lot of children’s financial habits are set by the example of their parents or parental figures - a Cambridge University study found children’s financial habits are set by age 7!
So it’s important to not only model good financial behaviour, but to talk about it and explain it as well.
For younger children a simple money concept for them to grasp is that you have to wait for something you want.
Often, it would make the most sense to talk about this in the moment, say, when a child is at the shops and wants to buy something. This can be reinforced by:
- Creating a “saving” and “spending” jar or piggy bank: Every time your child gets money, split equally between the two jars. The visual representation and tactile experience will help reinforce the different uses - the spending jar can be used for snacks and lollies, while the saving jar goes to more expensive items, or actual saving - as long as the purpose of each is clear and stuck to.
- Set a (reasonable) goal: Does your child want a new toy? Have them set a goal to buy it, and work with them to save up for it. Bear in mind, if the goal is too large, the kid will probably get frustrated and it will defeat the purpose of the exercise. If it’s a big goal and something they really want, consider matching their “investments” so the reward comes a bit more quickly.
Money Doesn’t Grow on Trees
Another important lesson to teach the younger generation about money is that money is finite. You only have so much of it, and once it’s gone, it’s gone. Often this is demonstrated by one of the oldest tricks in the book: an allowance or pocket money - and, as a parental figure, being strict with that allowance...no sneaky “extra” money because they spent it all on ice cream.
If an allowance isn’t on the cards, for whatever reason, there are a few other ways to go about sharing this with kids. This includes:
- Talking through your purchase choices: You buy the store brand rather than the brand name they see in commercials because it tastes the same and is a dollar less expensive.
- Letting them buy something off the list: If you’re at the shops, give them something off your list to buy - say, fruit for $2 (and you need enough for the whole family for a day, or something).
- Talking through your purchase logic: Outside of, “we’re buying x because of y”, you can talk through the financial logic, things like, “is this really something we need this week because we’re going to that pool party?” or “can we rent or borrow this instead of buying it?”
This is a talking point that evolves as children grow older and start jobs and have a bit more money to play with...and they earned it.
Interest is your friend
A lot of us probably remember the savings account we opened up at school. If your kid’s school does this, it’s a great way to show them how interest works, as they’ll see their money grow - and they haven’t done anything! But it’s not magic, it’s interest, and it’s important they understand what it is and how it works.
The primary purpose for younger children of a bank account should be to show how interest works - at this point, they may have “grown out” of the piggy bank because they understand the concept of saving.
As with everything else we’ve mentioned in this article, part of the importance here is actually talking to them about what’s happening, rather than just passively letting it happen.
Free, plastic money - or not
The fact that money isn’t free is a concept that all of us - even adults! - need to be reminded of sometimes, and when people hit that 18 year mark they’ll start hearing more about credit cards, or perhaps even earlier.
Credit cards are especially fraught as they’re “invisible money” - there’s no physical representation that you spent money and no immediate feedback that money is gone, just that you got the thing that you paid for.
As at this point your kids are young adults, this reminder is best had as a conversation, around budgets, credit score and the importance of paying back your credit cards in full (or at least more than the minimum payment) and on time. Of course, it’s up to you if you cosign a child’s credit card to help them learn those lessons early and with more immediacy.
Money is a hard topic for a lot of us to talk about in a logical rather than emotional way. Being able to do so as adults should help the younger generations in our life have a healthy relationship with money and understand how to navigate saving, budgeting, investing and interest to their advantage.