Learning about money and how to be financially savvy is an essential skill that we should all aim to teach our kids as they grow up. Whether it’s the basics of saving for their future or understanding the true cost of credit card debt, it’s important that we give them the best start in one of the things they will undoubtedly use for the entirety of their lives.
According to ‘S&P Ratings Services Global Financial Literacy Survey’ 64% of the Australian people are financially literate (based on some basic survey questions) compared to 55% of adult age groups in other advanced economies around the world. However, the fact that over one third of Australians are not financially literate should only increase your desire to ensure you children don’t fall into that category. Below are the basics you should be teaching your kids about finances.
The Organisation for Economic Co-operation and Development (OECD) and the Australian Securities and Investment Commission (ASIC) are a step ahead and have noticed that financial literacy is a problem within our society and have implemented financial education initiatives within both primary and secondary schools to counteract the problem. This doesn’t mean that you can simply rely on school to do the hard work, because kids are impressionable and anything done at home is something they are likely to copy. Here are the best lessons you can teach your kids about money to give them the best start.
One of the lessons around budgeting that the ASIC teaches kids is to plan a family outing and how to assign money to different tasks. This is a task that you can do with your kids at home, either on an evening out or during the course of the weekend. Decide on a particular outing and include some essential and optional costs that could be included during the day. A good example might be whether to buy lunch out or take it from home, or whether sweets fit into the budget for the day.
Buying and Selling
Kids love new things especially when there is always a new craze at school making them feel obliged to keep up with their friends. You can help show them how to buy new things a smarter way rather than simply heading to the standard retailers by instead taking them to second hand stores where their money will go further. Other means may be allowing them access to Gumtree.com.au to compare the price of buying second hand to brand new direct from the retailer. This helps them save money as well as teaching them the value of doing research online. If your kids master this lesson easily enough then try their hand at selling online by taking pictures, researching market value and negotiating deals with potential buyers, because nothing will set them up better than learning these valuable lessons early on.
“Money does not grow on trees”, the famous quote goes and unless you are fortunate enough to be able to show your kids how money is earned they won’t be able to appreciate the process. Making the link between work and income is a vital lesson that can show kids the value of exchanging time and skills for money. A great example can also be chores around the house in exchange for a weekly income.
Rates are currently very low in the marketplace which doesn’t make this lesson as stimulating as it used to be, however it is invaluable when setting up a bank account for you kids to learn. Showing them the interest rates associated to their account and how it will affect their money and savings will help them appreciate what they are earning and the result of storing it in one type of account compared to another.
Putting money aside for another day requires discipline and forward thinking, two things that are vital for financial stability in later life. Saving up pocket money for a bicycle in the summer holidays could be an ideal example to give your children as a reason why to save. If your kids are older, then letting them choose a savings account and helping them understand why one is better than the other is another valuable lesson.
Ultimately, learning the hard way is unfortunately the most powerful way to remember a lesson, but if you provide the right stimulus and enough advice to your kids at a young age then these foundations should hopefully give them a better understanding on how to live with money.