Are you teaching your children about money?

Experts believe that children can have a basic understanding of financial concepts like spending and saving at as young as the age of 3. By 7, their money habits might have already formed.

Essentially, it’s never too early to start teaching your kids money management skills.

Whether you’re doing so consciously or not, you are actually already influencing the financial future of your child. If you’ve ever brought them along to a shop, or stopped by a cash machine, or spoken about your paycheque, your kids have had first-hand exposure to how money works. Children learn by observing and patterning their behaviour after what they see. Their greatest influences, especially in early childhood, tend to be parental figures. Think of your own money skills and habits. It’s likely these are either highly-similar to those of your own parents or widely divergent. Habits are definitely engrained early in life. With this in mind, it’s important to model the best possible financial behaviours and to instruct your kids in how best to handle their money.

Unfortunately, money is a topic too often ignored in school settings, so the burden primarily rests on the parents to ensure their kids grow up with a firm grasp of all things financial.

The topics and lessons you cover will vary with age---your 6 year old will not likely understand compound interest, for example---but the most important money elements for any young person to grasp are the basics of spending & saving. Personal money management often depends less on being a financial wizard and much more on developing simple, lasting habits with how you use money.

Money Values: Shaping Your Kids Attitudes About Money

It’s not just about “how-to’s”. Your child’s attitude towards money will play a major role in their relationship to it and how well they manage it.

From the start, your child should be taught the value of money. They can see right away that part of the value of money is that it used to buy items. The clearest illustration is a trip to the shops, when your kids witness you making purchases and spending money. Your kids don’t need to grasp the full concept of how money works to understand that an exchange is going on. Money is for goods and services. Money is valuable.

Money is also valuable in that it can help shape a person’s future. Money can be a gateway to opportunities and growth and money offers the ability to provide for one’s needs and desires.

Money can be abundant, and many can be scarce. Much of this has to do with how it is handled.

The second major element for kids to learn---and perhaps the most important---is the hard truth that money must be earned. This is a bit more difficult to understand when you’re young, as children don’t understand what adulthood fully entails. We parents can seem to have endless reserves of money, and kids likely don’t yet think about the other expenses we have, such as bills, mortgages, and everyday needs.

Being transparent with your kids early on can help them make the connection between work and money. Share with them how your job enables you to earn money to pay for the things the family needs. To illustrate the concept to kids, chores are a key tool many parents use. Some household chores should be done without a monetary reward, as this serves the purpose of teaching responsibility and care of the home and belongings. But you might consider offering your kids a small cash incentive in return for completing extra chores. This will clearly exemplify the direct link between hard work and money earned, and for most kids, this is an exciting prospect. They’ll begin to associate effort and responsibility with fattening up their piggy bank.

Speaking of piggy banks, saving is another of the most important money lessons for kids. Even young children can be taught the necessity of saving. When your child wants an expensive toy, you have the perfect opportunity to teach them about saving money for the future. Instead of buying the item straight away, you can discuss a plan to save a certain amount of money each week. They might have a tantrum at first, but you’ll be giving them the gift of building their patience and learning that handling money well sometimes requires waiting.

As a parent, you might want to take time to think about your own attitudes toward money. With your kids, you have a chance to readjust your thoughts towards this entity and perhaps improve your own money relationships.

Do you think money is evil?

Do you associate money with discomfort?

Does money overwhelm you? (You’re not alone, one Australian Financial Literacy survey showed that 36% of respondents said ‘dealing with money is stressful and overwhelming.’

Money can create a comfortable life, but it can also cause stress and problems for many people. If this is your attitude about money, this doesn’t mean you can’t instil excellent money knowledge in your children, but it might require some fresh ways of thinking on your part!

It’s definitely worth it: the 2017 Parents, Kids, & Money Survey found that parents who discussed financial topics with their kids at least once per week were more likely (61%) to have kids who say they are confident with money.

Five dollars out of a purse

Real-life experience with money will be instrumental for your children

Money Basics: Learning How to Handle Money

To get money confidence starting, you can begin teaching your kids about three critical areas: Saving, Spending, and Sharing.

Depending on your child’s age, work with them to create specific savings goals and strategies for saving. One of the most popular ways to do this is with your child’s allowance or pocket money. A small amount of money given weekly will enable your child to learn what to do with their money. This is a common approach for many parents: a survey by CommBank found that roughly 80% of Australian parents give their children pocket money. You could also ask your child to ‘earn’ their money by doing extra chores or other at-home projects.

Once they’ve got some money in hand, the real teaching begins.

For most kids---and honestly, most adults---the first impulse is to spend that money. After all, it’s exciting to have money in hand and know that you can buy whatever you want with it. But from the start, children should learn that with money, decisions must be made. Spending is desirable and fun, but with the knowledge that money doesn’t grow on trees, it’s vital to understand that there is not an unlimited supply. So smart decisions must be made with that money.

For young kids, consider labelling three jars ‘Spending,’ ‘Saving,’ and ‘Sharing.’ When they receive money, have them divide it into these three jars. Ideally, the amounts should be roughly equal, but this isn’t necessary at first---kids can work up to it.

Money in the Spending jar is able to be spent immediately. Hooray! Kids can experience the thrill of buying an item with their ‘hard-earned’ cash.

Money put into the Saving jar should be allowed accumulate for a while. You can sit down with your child and figure out something they truly want that they will have to save up for. Avoid making this item/goal too expensive, or your child is likely to get burnt out waiting to save up enough, and the lesson will be lost. Instead, make it something that necessitates a month or two months worth of pocket money, so your child can start to understand the concept of saving from start to finish.

Finally, the Sharing jar is money that is meant to be given to others or shared with those in need. This is an important part of the lesson, because it instils in your kids the value of using money for good. Your child can choose to donate money from the sharing jar to a preferred charity or simply to do something nice for another person, such as buying a gift for another child.

The jar approach is groundbreaking for kids, because it teaches the necessity of making decisions with your money and evaluating each of those decisions. And it illustrates the concept in a very real and visual way. If your child fails to save, they’ll have the spectre of an empty jar to remind them.

As kids get older, they can move to a more digitally-based money system. It’s rare that cash is the most common form of payment. Instead, adults typically use debit cards, credit cards, or online transfer. For younger kids, the idea of ‘invisible money’ might be tough to wrap their minds around, but older children will begin to be able to handle money in this way.

Many banks offer a savings account for children. This is a simple and straightforward way to allow your child to discover the foundations of using money. Together, you can track incoming and outgoing money, and discuss concepts like compound interest. Your child will like to see how their money grows over time. These days, kids are quite tech-savvy, too, so let them work with you on online banking or via mobile apps.

As kids get older, they may be given a larger amount of pocket money, or they may earn money through part-time jobs and odd-jobs for the neighbours, or receive money as birthday gifts. Once they have a bit more to work with, you can really dive into the idea of making wise financial decisions. This is where figuring the difference between wants and needs comes into play.

Basic budgeting can also start now. The jar concept helps with this at first, but to introduce your child to real adult budgeting, you can have them take a look at your own budget or create a mock budget together. Using this, you can demonstrate how there are many ‘jars’ in which to put money. Whenever income is received, the budget shows which areas need money, such as rent or a mortgage payment, utility bills, grocery, etc. When the budget works out in the areas of ‘needs’ and immediate obligations, your child can visualise if/how there is money left over for ‘wants.’ Voila, a balanced budget.

By using a savings account and learning about budgeting, your child can begin determining how to best prioritise their money, and start implementing long and short-term goals. Hopefully, these will become pleasant and easy habits for your children to maintain throughout their adult life.

Money Matters: Debt, Credit Cards, Online Banking

Children should be developing a firm understanding of money concepts between the ages of 8 and 12. As they enter their teen years, these ideas can be expanded upon and other practical applications can be tended to.

Even before high school, kids should begin to learn about debt. Debt is one of the most challenging money-related issues, and knowing how debt works is perhaps the best way of avoiding burdensome and unnecessary amounts of it. Talk with them about credit cards, specifically. Credit cards can feel like ‘free money’ but the savvy saver knows that they can be quite detrimental. Discuss how interest adds up with credit cards and can quickly turn into a cycle of debt---and a dangerous financial situation.

Credit card and a laptop

Teach your kids about the dangers of credit cards and the potential for debt

At the same time, you can talk about the differences between ‘good debt’ and ‘bad debt.’ In life, acquiring some debt is occasionally necessary, such as when making the large purchase of a home or a vehicle. Good debt typically applies to something that grows and will generate value over the long-term. Debt can also be good when it is paid off regularly and quickly, helping to build up a positive credit rating.

Ultimately, discussions of debt should focus on how financial decisions can have major repercussions. Debts accumulated in early adulthood may only get worse as time goes on, limiting your child’s future opportunities, or preventing them from reaching their goals. Being smart with money should start now.

What other money matters should you discuss with older children?

Here are just a few more topics to be covered that will help them as they transition into adulthood:

Investing
Educational costs and student loans
Identity theft/fraud protection
Interest on loans
Saving for retirement
Taxes
Salaries for various careers
How to build credit

With these, you’ll help create a solid foundation as your child moves into their future.

How are you teaching your children about money?

Teaching Your Kids Money Management Skills

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