We all want to give our children a head-start in life. Teaching Children the concept of money at a young age will put them in good stead for their financial future.
The reason I say this, is because Children’s perception of where money comes from is the plastic card in their Mum/Dad’s wallet or the machine in the wall.
This three-step article will help you to set the foundations of good money management and savings now for your children.
Three steps to your kids’ financial success
For many of us, our first experience of banking and savings was the school Savings Account Program.
But in 2019 the Australian Securities and Investments Commission (ASIC) raised concerns that these accounts had little lasting impact on children’s savings behaviour.
All parents want their children to be better-off than they were – more secure and financially independent, but the big question remains: where do you start?
Guiding your children toward financial security can be a simple three-step process.
Step 1: Create good habits
The earlier you start teaching your children about money, the better prepared they will be to manage their money, learning to save is one of life’s great lessons. In an increasingly cash-less society, it can be difficult for children to understand the value of money and how to save.
Help them by:
- Providing a piggy bank for very young children, or a glass jar through which they can see their savings mounting up.
- Teaching the difference between needs and wants. Lead by example with your own savings habits.
- Involving them in the household budget; compare prices at the supermarket and demonstrate bill-paying.
- Paying pocket money for age-appropriate chores or encouraging them to get a part time job (depending on their age) and helping them to create a mini-budget, apportioning money to:
- spending on anything they want.
- donating to charity to instil a sense of community and empathy,
- saving for a goal; helpful in teaching kids restraint and how to avoid impulse buys.
Step 2: Inform
Nothing is free; water in the tap, electricity and even the internet don’t just happen by magic. One of the best ways to teach kids about responsible money handling is to explain debt and the consequences for not meeting financial obligations, which then opens ups a discussion about personal credit scores.
Explaining to your children that people with better credit scores find seeking finance approval easier and often qualifies them for more advantageous lending deals and better interest rates.
Helping kids understand the concept of a credit score can be a little daunting, so try these tips:
- Brush up on your knowledge first.
- Avoid complexity and keep the information age-relevant.
- Don’t focus on numbers, explain that it’s about financial behaviour over time.
- Use examples. Discuss mistakes you’ve made in the past, explain how you rectified them.
Step 3: Consider where you’re saving or investing
Record-low interest rates have taken the fun out of savings, but don’t let that stop your kids from calculating how much they can earn from the right type of account or investment. The Moneysmart website has savings calculators that kids can play with and learn from.
The banking and finance industry offers many accounts specifically designed to encourage kids to save. Go to the bank or online and help them research the account that will suit them. Explaining to them why one account may be better for them than another, by considering fees and interest.
Additionally, searching online will reveal a range of websites, blogs and apps dedicated to engaging and educating kids about money and savings. They may wish to invest money in the sharemarket.
We have set a lot of accounts up for children/grandchildren, where they can choose shares (either individual companies of diversified investments such as Exchange Traded Funds) providing the option to dividend reinvest their earnings (which can compound returns – read more) to get them started saving for the medium to longer term.
Introduce your kids to good habits while they’re young, and you’ll be setting them up for success.
Finding the most child-appropriate plans and accounts that specifically suit your child’s needs can be challenging. Contact our advisers and we will be happy to work with you as you guide your children into a financially secure future.