Kids can start to understand the value of money as soon as they can have a conversation, typically from around age three according to finance advocate Beth Kobliner.1 A British study found that by age seven, money habits – such as being able to plan ahead and delay gratification – can already be entrenched.2
Suffice it to say, you should start talking about money as early as you can with your child, keeping conversations open and honest while remaining age appropriate. Annual surveys by the Australian Psychological Society regularly find that money and finance are at the top of our list of worries; many people struggle with ‘limited savings’ and ‘spending more than they earn’.3 The stress caused by money concerns can even have flow-on effects for our health and wellbeing. If we can help children develop a sound approach to money and good financial management skills while they are young, they will become familiar with the role of money and be better prepared for the financial challenges of adulthood.
Here are 12 ways we can do just that:
Weave lessons into everyday life by involving children in financial decision-making processes whenever possible.
If you are making a large purchase (such as a car), if your child wants to buy their own ‘expensive’ item, or even when you are at the supermarket, this can be a great opportunity to teach children valuable lessons about money.
- For large purchases, show kids how to research different brands and features; discuss what features you value, what you can afford and how to find a compromise; and talk about how to see through clever marketing and advertising strategies.
- When kids want to buy something expensive, help them think about why they may want an item and how much value they will get from it, whether they can afford it or could potentially earn the money to buy it, and how important is it to them to have this item compared to something else.
- Get children involved at the supermarket so they come to realise what everyday items cost. Have them help you compare different brands in terms of price and value and decide on what to buy. Talk about sticking to a budget and reducing unnecessary purchases. Older children could even be given a list of necessary items and sent on a mission to spend less than a given budget.
Let kids use cash – not cards.
This can be easier said than done in our increasingly cashless society; kids don’t see us counting our money or putting it in the bank, or physically paying bills. But kids need to use cash because it teaches them that money is finite, unlike credit cards. Even adults have been found to spend more with credit cards than with cash;4 there is a certain sentiment that it isn’t as ‘real’, but of course, it is.
Encourage children to work for money, save it and even purchase a wanted item.
This could mean doing ‘chores’ for you or getting a paper run. Even better, encourage them to start their own small business, for example, selling lemonade in the street, walking dogs, weeding gardens, blogging, babysitting or helping younger children with school work. Working for money teaches them that money doesn’t grow on trees but has to be earned by working hard.
Discuss and model the concept of delayed gratification and having savings goals so that kids understand that giving up something small now (like collector cards or bubble gum) can mean they can buy something much better later on (such as a new bike).
Help them open a bank account at an actual branch.
Having a physical place where they know their money is ‘stored’ can help them conceptualise where their money goes when they make a deposit and where they ‘take it’ from, either via an ATM or online banking.
Show children how to view and manage their money online.
It’s encouraging for them to see their balance grow as they earn and save, and they can see what happens to their balance when they spend their money.
If your kids want an expensive item and have a regular ‘income’ (even if it’s just pocket money), you could lend them the money and teach them the concept of credit.
Discuss a reasonable ‘interest’ rate and work out regular, attainable repayments. Make sure they stick to it – you could even work out financial penalties for non-payment.
If your child is on the road to making a money mistake (such as an impulse buy you think they’ll regret), let them do it and learn from it.
Discuss alternatives for next time and cheer them up by talking about money mistakes you’ve made in the past that you’ve learnt from.
Encourage children to spend some of their income by donating to charity; this helps them realise not everyone has the money they need, let alone what they want, and builds compassion.
Let them choose which charities to donate to, according to what they are passionate about.
Help kids decide on a formula for where their money goes, e.g. 20 per cent goes to charity, 40 per cent is saved and 40 per cent can be spent.
Be open and honest about money – it shouldn’t be a taboo topic within the family unit.
Many schools do not teach personal finance or money management, particularly in the primary years, so if you don’t talk to them about it – who will? Children are naturally interested and curious about money from a young age. Allow them to see how much you earn, how much you have saved and how much you must spend on bills and other liabilities. You can even talk to them about how the family could spend less and save more. If you open the lines of communication early so your children know they can come to you with money questions, they are more likely to learn how to manage money effectively and make better choices.
Be a good role model in the way you talk about money as well as how you act (i.e., the way you spend, save, and your attitude towards money).
Kids copy almost everything they see, so if you have a healthy attitude towards saving, prioritising and making sensible, responsible spending choices, there’s a good chance your children will too.