Teaching financial literacy to children is an issue that is often neglected, and by default children often form the same habits of their parents. In many instances these are habits that should not be passed down through the generations and contribute to the “debt treadmill’ of many Australians.
As a starting point your attitude to money as parents will largely shape your child’s attitude in the same way that it applies in other areas of their life. If you spend money impulsively on items that depreciate it is highly likely that your children will do the same. Remember the “apple often doesn’t fall far from the tree”. It is unrealistic to expect your children to have a more mature approach to money than you, so before you start the education process make sure your own house is in order.
How you teach your children about money depends on how old they are. For example with younger children you may start with explaining that money is something that you exchange for something and allow them to hand the coins to the shop attendant. There are a number of small things, which you can do at home that can assist in giving your children the ability to achieve financial independence as adults. These include:
- Paying your child pocket money on a regular basis. By the time your child starts full time school they are generally ready to receive a regular weekly pocket money allowance. The big question is how much do you pay them? We have adopted the philosophy that the amount they receive equates to the age they are, for example our 6 year old receives $6 a week. Whilst their chores are hardly back breaking they are expected to perform these on a weekly basis. Simply handing your child money is asking for trouble later on they will look at you as a mobile ATM.
- Use the school banking system. I was amazed when I asked my 8 year old daughter how many of class used the school banking system and she replied “about half of us”. The school banking system is one of those free kicks you have been given as a parent, in that it provides an established savings mechanism that your child can not touch to buy lollies with. Every week we pay our children their pocket money on the school banking day and they work out what they would like to save and what they would like to spend. Whilst they are hardly saving millions at this stage it is not the amounts that count but the habits and behaviours that we are developing.
- Discuss financial issues openly at home. When I was growing up in the 1980’s the family finances were covered mystique not just in my home but amongst my friends as well. We had no idea as to what a mortgage was, how much a holiday cost, the cost of running a car etc. Whilst your children do not need to know the nuts and bolts of the family finances, having a general knowledge is a good start. It is worth remembering though that you should not burden your children with your financial worries or make them feel guilty for what they cost you. We all know children cost a fortune. Just do not add it all up and you will never have to worry about this issue.
- Allow your children to make their own purchases. By splitting the weekly allowance into a savings component, which goes to the school banking and a spending component which sits in each child’s money box, each child is then able to spend their money as they please. As tends to be the case in the modern world we live in, there is no shortage of items in which they want to purchase. However (apart from birthday or Christmas presents) some schools provide the opportunity for the children to buy educational books and accessories, which come home in their diaries several times a term. This has the added benefit from a parent’s point of view in that the items are educational and they are delivered to your door.
- Take your children shopping with you. This is an activity that most sane parents generally avoid doing and it can be a stressful time particularly at the supermarket. However shopping can provide important lessons on how to compare prices, and products. As your children get older if you are game you can give them the shopping list and see how they go. A word of warning! As a middle aged male this can be a very difficult process. My advice is to keep it simple.
- Encourage your children to obtain part time independent employment in their mid to late teens. Having a part time job whilst still at school is likely to be the first introduction into the adult world and provides a platform from which to start saving and accumulating assets in their own right such as a car.
As a final comment it is worth remembering the earlier you start the education process the greater the benefit your children will enjoy. The secret is to make it fun, interesting and engaging. Children have short attention spans so do not prepare a grade 12 mathematics lesson for them or they will lose interest. By taking a series of small steps over a long period of time your children will eventually be able to climb the financial staircase of life.