How do you set your kids up to be financially literate?
Money can be quite the taboo topic, which has the unfortunate side effect of making money matters more mystical than they should be. Like many things, ‘money sense’ is typically learned at home by copying what Mum and Dad are doing.
Given how the past two years have highlighted the importance of savings and emergency funds, we thought it prudent as part of our end of year wrap up to revisit some tips for helping next generation get financially savvy.
Start now
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. Here’s some suggestions:
From 4-9 years
Keeping things basic and fun is key at this age.
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 – who knows, it might even motivate them to get in and help with the weeding!
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.
From 14-16
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.
If you feel comfortable doing so, 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.
When looking at universities, work together to calculate and discuss the costs. Having everything laid out and transparent will help them have a holistic view of their costs, and where they can potentially reduce these.
The key thing to remember is that habits start at home, and that your children will mirror your money management (good or bad). So while you’re looking into how to teach your kids about money... it’s a good time to take stock of your current financial situation and whether you’re on track.
We talk a lot at Stewart Group about getting your financial house in order. It’s what we do. And much like any house – if you’re thinking of passing it down to someone, you’ll want it to be sturdy enough to weather the years until then. Whether your goals are to help set up your children (or future children), or even just retiring in comfort with options, a good place to start can be having a chat with the professionals to assess your current situation.
Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX certified financial planning and advisory firm.
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. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
