Personal money management is one of the most important skills you can teach your children. The world is rapidly changing the way we spend money, as well as the products and services we spend our money on.
Learning these skills at an early age will help nurture positive financial habits later on however these lessons are too often overlooked during a person’s younger years.
By The Numbers
Per a financial literacy report prepared by The Australian Securities and Investment Commission, over 60% of young people said that they view money as only a means to buy things. This contrasts with the 55% of adults who expressed the same view.
Additionally, the report found that 59% of young people like to “live for today” when it comes to their finances. This number is not surprising, given that young people are often criticised for not considering the future. That percentage drops markedly when compared to the 31% of adults who answered the same.
The good news is that the attitude of younger Australians is positive and more confident than previous generations. In all, 90% of young people, aged 12-17 recognise the importance of learning about savings and 85% expressed a belief that planning for their financial future is important.
Speaking of the Future
These attitudes bode well for the future; however, millennials are lagging behind their younger counterparts. In all, two thirds of young people admit to having no plan to save money, or express a belief that their savings plan isn’t working.
The data suggests that while the attitude may be in the right place, the actions aren’t. Therefore, it’s more important than ever to empower young people with a level of knowledge regarding personal money management. What they learn now will only help them in the future.
Here are a few ways to get kids involved in understanding how their money works.
The Supermarket As a Learning Experience
Your 6-year old isn’t likely to understand the intricacies of the real estate market, or how stocks are priced and valued. However, he/she will probably understand the value of a jar of Vegemite!
The supermarket is a great place to start teaching basic financial skills to children. You can use the opportunity to compare products, note the difference between brand name prices and generic ones, and even briefly discuss income vs expenses.
Complex topics are always easier to convey with a visual aid, especially for a younger audience. Children don’t always have a solid idea of what “money” truly is. This is a great opportunity to begin introducing the concept and demonstrate the value of goods and services.
At The Bank
Keep quiet. Stay near me. No talking. Those are the common instructions that adults give to children when it comes time to go into the bank or withdraw money from the ATM. However, these are also important events that can be used as teaching moments.
The younger your child is, the more likely they are to believe that the ATM is a magical machine that spits out money with no regard for where it comes from. It can even be fun to play along with this notion.
Use the ATM as a visual aid in teaching personal money management. Explain to your child how the money you’re receiving is yours and it comes out of your account. Explain how you worked for your money and that the bank holds it for you.
Most importantly, this is a great time to introduce the basic concepts of income and saving.
Help Them Form Their Concept of “Money”
All kids “want” something whether it’s a toy or an ice cream cone. However, they don’t always understand the financial impact of either. Use these opportunities to convey the concepts of saving, wants vs needs, and perhaps more importantly: the value of delayed gratification.
For example, is that new toy worth it? Is there a better alternative? Will it be any less enjoyable if you wait a few weeks for the price to come down? By relating simple ideas to a situation your child understands, you can impart the concept of instant vs delayed gratification.
You will also be demonstrating how products and services have either an inherent or perceived value and how that value changes over time. It also forces the child to understand that toy doesn’t come off the shelf for free and that you had to work to earn money to put into your account (that you took out of the ATM) to pay for it.
By keeping these ideas relatable, you can help your children make smarter decisions when it’s their money and not yours!
Budgeting and Bills
If you create a monthly (or yearly) budget there’s no reason not to introduce these concepts to your kids. Making and adhering to a budget is a powerful skill that everyone can benefit from. Use this opportunity to further the discussion on income and expenses, demonstrate how certain services cost money and how income needs to cover those expenses.
With PictureWealth, these complicated numbers become easier to see and understand. Our system dives into your personal finances and shows you exactly where your money is coming from, as well as where it’s going.
We believe strongly in empowering people with trusted, relevant financial information. We show you the areas where you need improvement, as well as the opportunities you may be missing. It’s easy enough for a child to comprehend while detailed enough for adults to benefit.
It’s Never Too Early To Start Learning About Personal Money Management
By taking this journey together, you can show your child how your own finances work and explain what you need to do to reach your financial goals. By starting down this path at an early age, kids will be empowered to make their own smart financial decisions later.