Knowing how to explain money to a child, teaching kids the value of money, budgeting and the all-important pocket money conversation are all challenges parents will face at some stage.
You don’t necessarily need to be specific with what you earn and spend, but money shouldn’t be a taboo subject and we shouldn’t shelter our kids from real-life money matters. By having open conversations with your family and helping your children to learn about and practice good money habits, you’re setting them up to make educated decisions for life.
Good habits can take weeks, months and even years to build. So there’s no better time than now to start talking to your kids about money.
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We’ve pulled together 6 easy steps to get you started. There’s also a more extensive downloadable guide at the end.
1. Embrace their inquisitive nature
Kids are inquisitive by nature. They’re eager to learn and are constantly asking questions about why and how things work. You don’t need to plan a day-long lesson on the history of the RBA! Simply start by asking them questions like ‘what do you know about money?’ and ‘do you know where money comes from?’
As they get older, these questions will evolve and you may end up spending a few hours building a budget, but start with a few simple questions and work your way up.
2. Honesty is the best policy
As much as we want to shelter our kids from parts of life, they can really benefit from being aware of the fallout and payoffs of certain decisions. Avoid hiding financial hardships from your kids and share your regrets and learnings with them.
For example, you may have bought a car when you were younger. At the time you could afford it and liked having it, but you didn’t really need it to be that big or expensive. If you could go back, you would probably buy a smaller, more efficient and less expensive car and used the other money to go towards your home deposit. So share these learnings with them, and rather than just telling them not to buy a big, expensive car, help them weigh up the pros and cons, and how that money could be spread further.
3. Family goals
Setting goals as a family is a great bonding exercise, helping you to understand what is most important to each person, as well as a collective. It’s also a great lesson for kids in setting goals, making an action plan, budgeting, working towards something and delayed gratification.
Take the time as a family to sit down, and using our Goals Worksheet, set some achievable objectives. Set smaller milestones and remember to celebrate the wins with the kids along the way.
4. Wants, needs, and making sacrifices
As we set goals and decide what we’re going to work towards, it’s the perfect time to clarify the difference between what we need, what we want, and what we might have to sacrifice in order to achieve the most important goals.
The goals worksheet above will help with this, but as an activity, get the kids to write down a list of all the things they want, say for the next 12 months. You might have to remind them to include activities like going bowling or to the movies, playing sports, or a family holiday (not just a new iPad!). Go through and pick out the most important ones, and discuss what they would be willing to give up for the things they want the most.
5. Let the tablet do the talking
Kids are all over how to work phones and tablets, so why not use an app to help them learn about money!? There are a number of apps like RoosterMoney Pocket Money App and Spriggy Pocket Money designed specifically to help parents teach their kids about money. MoneyBrilliant is a little more advanced app, with the free version being perfect for teenagers. We recommend you use the app yourself, practice what you preach, and role model how you use the power of information and technology to make informed decisions about the money.
For younger kids especially, understanding the value of money can be difficult as tangible cash is now a rarity. By using an app, you remove the cloak of invisibility around money and the concept of money becomes more realistic.
6. Let them make mistakes
As hard as it is to watch our kids make mistakes and misjudgements, the lessons they learn from these mistakes are invaluable. Giving them freedom helps them to learn responsibility. They learn how to review a decision and identify where they went wrong, and will know better next time.
Another few handy tips and activities:
- Never go grocery shopping without a list and only buy those items. Let your kids be responsible for holding the list while you’re at the shops, ticking things off as you go.
- Avoid taking the kids shopping as a form of entertainment or therapy.
- If they ask for a new toy, game or item of clothing, ask them to write it down on a piece of paper. If they still want it (or remember it) a week later, then look at how it fits in with the budget.
- If something breaks, think of ways you can fix it (if possible) rather than throwing away and replacing.
- Debrief after purchases. Sometimes we think we really want something, only to have forgotten all about it a week later. It is good to discuss how we feel about a purchase decision some-time after making it.
- Have a look around! What do they already own that they now feel was a waste to purchase?
AMP has developed an in-depth guide ‘Good money habits for life’ which covers:
- Financial literacy for kids checklist – broken down into age groups,
- Deferring gratification,
- Encouraging a money-saving mindset,
- Learning about earning,
- Spending wisely,
- Learning about money in a cashless world,
- And dealing with debt responsibility.
It also includes games, incentives and activities to try with your kids along the way. To download the guide, click here.
Using COVID-19 to highlight money lessons.
Many of us have been impacted financially by the Coronavirus pandemic. No matter your situation now is the time to highlight some important money lessons, including:
- The importance of an emergency fund: we never know when life will change our financial situation quickly and we need to be able to support ourselves when that happens. Teach your children to save for a rainy day.
- Change money habits: so often we think our expenses are ‘fixed’ because we have a pattern of behaviour to the way we spend. Perhaps it is a regular coffee out, or take away a few nights a week. The internet is full of incredible ways to save, but you have to change what you do in order to change what you spend. Given so many of our usual routines have been disrupted, now is a great time to focus on enjoying life while spending less.
- The good and bad of comparison: we have all heard of the phrase ‘keeping up with the Jone’s’ implying we spend to have what our neighbours have. But taking a good look around at others right now has pros and cons when it comes to money. There will be many doing it tougher than normal, and that can teach us to be grateful for what we do have. Take time to talk to your kids about what drives their ‘wants and needs’ and how they can look to friends and family for inspiration and good ideas without necessarily wanting everything they have.
- Identify what you are truly missing right now: not having our normal freedoms means we are missing many of the elements that make up our normal life. By shining a light on those things, it is a great way to identify what is really most important to you. When things go back to normal, your budget should highlight those things where possible. Start a ‘wish’ jar and fill it with notes on the things you are missing. When the distancing measures are relaxed, you know where to start planning!
‘Never waste a crisis’, there are many valuable lessons we can all learn about our lives during this pandemic; make sure you are sharing those openly with your whole family.
If you would like to discuss your financial situation, we are happy to assist. Contact us today.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.