There is no better time to put financial literacy on the agenda for both yourself and your children. As the saying goes "give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime". Teaching your children about money sets them up for the future. Ensuring you are investing in your financial literacy, gives you the means to better live the life you are looking for.
Today, we have a special treat. A guest post from the experts at CodeWeath Property Investment Advisory.
Kids learn to ‘save’ – Parents learn to ‘invest’
One of the greatest gifts we can give our kids is to teach them financial literacy, and one of the greatest gifts parents can give themselves is the education to invest for the future. Building the foundation early in kids can be easy and therein developing the right behaviours into adulthood, even easier.
Parents are hands-down the most influential figures in regards to their children’s behaviour with research showing this also extends to money management. Even the wisest financial lessons won’t shape your children’s habits if they don’t observe YOU making fiscally responsible decisions. A perfect example is using a family budget to understand what income comes in, what expenses go out, paying bills on time and to demonstrate the need to save for life’s pleasures as equally as for any unexpected events.
Five (5) important financial values critical for kids to learn;
1. Responsible spending
The first concept is that people buy things with money. An increased use of credit cards, internet banking and online shopping means kids often don’t see actual money being exchanged for purchases. Even from a very young age shopping trips should be used as learning experiences.
We all know kids want everything (and want it now!) As kids mature they should learn the difference between their needs and wants. Once they have their own money, learning to differentiate between needs and wants will be a process of trial and error – and there will be plenty of mistakes along the way. The hardest part for parents is resisting the temptation to bail them out when the piggy bank is empty!
2. Work/Money connection
From a young age, children should understand money comes from work, not mum and dad’s pocket or an ATM machine. Begin by explaining why you work, i.e. to make money for the family to buy things you use every day and to save for the future. The best way to help kids make the work/money connection is to pay them pocket money for chores. Kids under six need to be rewarded immediately for the work they have done to make the connection. Older children can receive regular payments so they can learn to budget. One idea is to provide two different containers so they can split their money – spend & save. This reinforces the two ways to divide (and appropriately allocate) their income.
3. Importance of saving
Kids under seven cannot really comprehend that one day something may happen and they may need money in reserve. This doesn’t mean they cannot get into the habit of saving. Identify things they want and help them set up a savings plan to get them. Kids love instant gratification so they need to learn about the pleasure of delayed gratification! Once they are older enough to understand the concept, open a savings account with your children. This shows them what a deposit is, how interest is earned and also introduces them to compound interest so they see how they can earn interest on their interest.
As they mature, involving your kids in discussions about the family budget helps give them the big picture about costs and spending. Budgeting teaches children the following key lessons;
Help older children create their own budgets using spreadsheets, online programs or mobile apps and watch them take ownership of their finances
Concept of debt
So, your spendthrift has just blown their allowance or their first pay? What do you do? Rather than providing a handout this is an ideal opportunity to introduce the concept of debt. Explain you are prepared to lend them money but also explain there is a cost – when it is paid back, they will have to pay more! This is gentle preparation for the day they need to front up to a bank and ask for a loan.
New concepts and the right age to introduce