Canny View by Nick Stewart, CEO & Authorised Financial Adviser
Published in Hawke's Bay Today.
For years financial matters have been taboo – rarely discussed among adults, let alone with children.
However, concerns over growing student loan debt, credit card use, and the repercussion of the Global Financial Crisis have put a spotlight on the importance of financial mentorship that starts at an early age.
The younger generations are recognised as an underserved group when it comes to financial literacy.
Studies have shown that the earlier we start teaching kids about money, the more capable they are at managing their finances as they get older and helps improve their math and critical thinking skills.
Providing our kids with a strong financial foundation starts early and at home. To become a positive financial mentor for children means understanding how to approach the conversations.
This article gives you some ideas on how to relay these concepts in a meaningful way at every age.
From 4-9 years
Warren Buffet said, "Parents shouldn't wait until their kids are teens to start teaching them about money management." He suggests parents begin the process as early as the preschool years and be consistent throughout the child's life. In these early years lessons about money must be kept basic and fun.
Check out Buffet's animated kids' show The Secret Millionaires Club.
Get your child three piggy banks and label them "Spending", "Saving" and "Sharing".
Have your child set goals for their "Saving" piggy bank.
Help them start a business. Teach your children how to sell the excess seasonal fruits/veges from your garden.
Involve them in budgeting tasks like grocery shopping and coupon clipping.
Consider giving them a small allowance. A common starting point for a weekly allowance is 50 cents to $1 for each year of the child's age if that feels appropriate to you.
Utilise games like the Saving Spree app or the classic Game of Life to make lessons more fun.
Practise comparison shopping together.
From 10-13 years
At this age children are getting a better understanding of how money feeds into the many aspects of life and what socioeconomic levels exist around them. Money begins to take on a new and important meaning, which you can help foster.
Use an allowance as a means for pre-teens to start managing their money, paying for extras and saving for things they want.
Another common rule of thumb is that allowance should not be tied to chores. By linking allowance to chores, the lesson becomes more about work than money. Chores are something that everyone does to contribute to the household.
Encourage them to budget for donating to worthy causes.
Begin explaining the concepts of credit and debt.
Have a frank discussion about online shopping and lay out the rules to be adhered to.
Between these ages is when children start looking for their first job. With money of their own coming in, the importance of money management is taken to a new level. It's the perfect opportunity for them to learn the value of a dollar and how to make the most of the money they earn.
Help them set up a cheque account and begin the process of explaining the concepts behind investments.
Have them contribute to bill payments such as their cellphone, car insurance and non-necessities.
Involve them more in the household budgeting to show that financial management is an important part of everyday life.
Expand their understanding of credit and debt by explaining the basics of credit cards and what their credit history is.
Give them money for a specific purpose, such as petrol or lunches, to teach them about allocating their resources responsibly.
From 17 and beyond
As your child moves towards striking out on his or her own, it becomes increasingly more important that they understand how to manage their finances. Once they reach the age of 18 they can open credit card accounts, enter into financial agreements and make contracts on their own. Guide them in making smart financial decisions in young adulthood.
Open a joint credit card account that's in your child's name but make them responsible for paying the bills each month.
Discuss how the finances will transition after they graduate high school – topics include monthly bills, housing costs, transportation, etc.
Help them invest their money – provide advice for buying a few shares or investing in bonds.
When looking at universities, work together to calculate and discuss the costs.
Parents are the first and most influential money mentors for their children. The habits we help them form early in life create a domino effect that continues well into their future, which is why it's important to make sure their first few dominoes are well-aligned.
• Nick Stewart is the CEO and Authorised Financial Adviser at Stewart Financial Group and its associated company Boutique Advisers Alliance. Stewart Group is a Hawke's Bay-owned and operated independent financial planning and advisory firm based in Hastings. Boutique Advisers Alliance provides a custodial platform and core services for independent advisers in New Zealand
• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.