1 Budgeting skills
Although factors such as income, social norms and other behavioural biases influence people‘s spending habits, self-control is undoubtedly one of the factors behind the Financial Literacy Foundation‘s (FLF, 2007) finding that, while the ability to budget is the area in which Australians are most confident (90%):
- 48% of adults said they do not budget regularly for their day-to-day finances;
- 27% had difficulty setting money aside for big purchases or spending; and
- 17% could not get by for some time in case of a financial emergency.
Teaching your child to budget imparts a sense of financial awareness and responsibility.
2 Saving habits
Significantly, those in the 16 to 25 age bracket are the most vulnerable financially and represent 42 per cent of the least financially literate in our community according to the Australian Securities and Investments Commission (ASIC). It is within this age frame that many consider moving away from the family home and therefore need to commit to regularly paying bills such as rent, phone and utilities.
A recent study of Australian youth mobile phone usage found “bill shock” as well as confusion and anxiety about financial issues and contractual obligations was associated with mobile phone plans. One quarter of Australians aged 12-17 have some form of financial debt and while the proportion of those with large debts is relatively small, the impact of such debt on health and wellbeing can be severe. Savings habits are also lacking, as the same study found that over half of young Australians are spending all, or most, of the money they earn each month on consumer goods. The study finds there are substantial societal and cultural pressures, including advertising and targeting by companies, that contribute to the spending habits of young Australians.
Saving today for tomorrow is a fundamental understanding that needs to be ingrained prior to the move away from the family home. Setting goals that children desire, giving pocket money for chores and starting them in the workforce are extra steps that can be taken to promote good saving habits.
3 Financial dependency on parents
As can be seen from who young people live with, most young people (79 per cent) are remaining in the parental home at least until they are 24 years of age. This may be a result of delayed departure from full-time education, but it is also associated with broader patterns of increasing financial dependency (Cobb-Clark, 2008) and high housing costs (Flatau et al., 2007). Cobb-Clark (2008) suggests that by living in the parental home, adult children can maintain their consumption levels.
Ensuring financial independence for your child is essential for your child being able to survive in today’s society. Teaching them about the pros of debit over credit informs a sound financial grounding for later in life.
4 Economic benefits and social responsibility
The Commonwealth Bank of Australia’s ‘one million kids’ campaign identified that by boosting financial skills for 10 per cent of Australia’s population with poor financial literacy, the country could create 15,000 new jobs and increase Australia’s GDP by $6.2 billion annually.
Seeking opportunities to give back to the community and being socially responsible are also important. Hence it is desirable to seek opportunities within the community to help others with causes which align with personal beliefs.
Financial literacy is not only good for your child, but also good for Australia. Teaching your child about giving back to the community through charities is also a valuable activity.
5 Effects of lacking financial literacy
Young Australians are high users of basic bank accounts – four out of five Australians aged 12-20 had a transaction account with a bank and 57% had a debit or EFTPOS card. Young Australians are strong consumers of goods and entertainment and most own, or use a mobile phone. However, consumer activity can lead to compromised financial outcomes if young people lack the knowledge and skills to make sound financial decisions or because they do not understand their consumer rights.
Equipping your child with financial knowledge is the best way for them to make informed choices about their financial future.
Have you heard about‘Global Money Week’? It’s an annual international money awareness celebration which will take place in Australia from the 14-20 March 2016 with the theme of ‘Take Part, Save Smart’. Global Money Weeks’ goal is to engage children and teenagers worldwide in learning how money works including: saving, creating livelihoods, gaining employment and entrepreneurship. I’ll be sharing heaps of information in my blog during Global Money Week. If you’d like more information, please check out the website: globalmoneyweek.mfaa.com.au