How to Teach Your Kids About Money
You expect your child to learn about math, reading and science at school, but what about personal finance? Dealing with money is an important part of their everyday lives. It affects the choices they have and the decisions they make yet we’re neglecting to teach our kids how to grow and manage their money.
Most of us had to learn lessons about money the hard way but it doesn't have to be that way for your child.
Here are six ways you can start teaching your kids how to be confident with money today.
1. Pay your child pocket money
A good way to start teaching kids about money is with a weekly allowance. Letting your kids learn how money works for themselves is a powerful tool to practice money management. An allowance lets them test the principles of budgeting, saving, impulse control and delayed gratification before they go out in the real world.
How much you pay them depends on your financial means and what you expect them to be financially responsible for. An allowance should be treated like a pay cheque rather than a gift – something that is earned, whether it is for chores or academic achievement, it should be clearly laid out and discussed. It should also be clear to you kids what they’re expected to buy with their allowance and what you will still pay for.
Once they’ve used up their allowance it’s important to not give your child unlimited funds for discretionary spending. If you do this, they may develop a habit of relying on additional funding sources when they want something they cannot afford which will lead them into debt and high-interest credit cards as adults.
The idea here is to allow them to experiment with money of their own by allowing them to make their own financial decisions and to see the consequences of those decisions.
2. Teach kids about saving, interest and banking
Encourage your kids to put a fixed amount into a youth Savings Account so they learn the basics of banking and earning interest.
Explain the difference between Everyday accounts and Savings accounts and what interest is.
For younger kids it can be as simple as agreeing a savings plan with your child and what they’d like to save up for. Once they’ve saved enough money to meet their goal, give them the chance to decide if they’d like to use it or keep saving for something more meaningful or valuable that they want.
For kids 10 years or older you can introduce simple and compound interest and explain the benefit of starting to save early.
Get your child to search banks online to discover what interest they are paying on Everyday and Regular Savings accounts.
See if they can find a savings calculator online to see how much they can achieve by saving and how quickly they can reach their goals.
Tell your child they have just been given $1,000 by their grandmother on the condition they bank it for one year. Get them to research which bank which will give them the most money by the end of the year based on interest rates on long term Savings accounts.
For older teens, you can use the same exercises to get them explore the cost of buying a house. Get them to search on a real estate website and select a house. Ask them to calculate how much is required for a 20% deposit and work out how long it will take them to save this amount using an online savings calculator. Then use an online mortgage calculator to help them work out the repayments required for the balance (80% of the purchase price). Get them to explore how changing the loan amount, interest rate and term can affect the repayments required.
3. Get children thinking about smart spending
When your child has their own hard-earned money to spend, you’ll want to teach them ways they can get the best value for their money. Here are some activities to get them thinking:
Get your child to search online for stores having sales
Pick a product and ask your child which shops they would go to to compare prices.
Ask them what products they have purchased online? How easy was it? Are they satisfied with what they ordered?
Ask if they have ever had a bad experience shopping online and why.
Discuss the meaning of the quote “The bitterness of poor quality remains long after the sweetness of low cost”.
Discuss things your child has purchased second hand. Did they work or last?
Discuss peer pressure. What are some of the things your child has felt pressured to do or buy or own to fit in?
Discuss advertising. Has your child seen an advertisement and thought to themselves “I’ve just got to have that!”?
4. Teach your children how to budget
Budgets are one of the most powerful tools you can give your child to learn how to control their spending. Start by explaining what expenses and income are. Then discuss the difference between needs (e.g electricity, rates, insurance) and wants (e.g chuck steak vs fillet steak, holidaying in a camping ground vs staying in a motel).
If your child is older you can ask them to create a monthly budget for the family using an online budgeting tool so that they get an understanding of living expenses, disposable income and the difference between a deficit and a surplus.
For younger children you can simplify the exercise to creating a budget for a family holiday or if they’re going to a birthday party, give them a budget they need to stay within to shop for a gift. This will teach them about comparison shopping.
5. Get comfortable talking about money
Talking comfortably about finances is also an important part of helping your kids develop a healthy relationship with money. Instead of approaching money conversations as serious dialogues, make it a regular part of your day-to-day interactions. You can even turn lessons into games.
Here are some ways to start bringing money into your regular conversations.
If you’re talking about a profession, see who can guess closest to the median salary.
If you’re at a restaurant, let the kids guess how much each dish costs. Compare that amount against what they have in their bank accounts to give them some perspective.
Have a conversation about why some things cost more money than others. Is it the same product with different branding? Or does it have more features or is it of higher quality to justify the higher price?
When you're paying bills, take the opportunity to explain fixed household expenses versus discretionary ones
Include your children in financial decisions. For example, at the supermarket you can look at the circular together to see what’s on special before deciding what to make for dinner. Or you can ask them to make budget-based decisions, like they can have one expensive clothing item or two cheaper items because you have only budgeted so much for clothes.
These activities will get your kids to start thinking about the role of money in everyday life.
6. Use an online financial literacy program
Personal finance is a huge topic and we know it can be daunting for parents. Many parents tell us, they don’t even know where to start. That’s why we created MoneyTime. MoneyTime makes it easy by teaching children ages 10 to 14 everything they need to know to get a head start in life from saving through to investing. No financial knowledge or teaching required by parents!
MoneyTime is a complete online financial literacy programme that combines lessons with a game so that children learn through play. The game promotes financial maturity by giving your child the opportunity to make real life financial decisions and to see the outcomes of those decisions. It allows them to learn through trial and error by trying out different strategies like they would in real life. In this way they learn the value of money and how being smart with money can help them achieve big financial goals, such as purchasing a property.
We often hear parents say:
“This is all the information I wish someone had taught me about money when I was young!”
The programme includes parent child modules specifically designed for you to complete with your child. These put your child’s learning into real life context and give you an opportunity to have some real conversations about money and the future with your child.
Why not give your child a head start in life by giving them the gift of financial literacy today?
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