At Shoebox, we believe in teaching kids about the value of money and smart financial decision-making. For children, saving is a long term habit that could mark the difference between huge financial success or downfall. I’m sure many adults these days wish they had learned the behaviour young so that they could get a head start for their future.
One of the benefits of starting learning early is that young children are quite impressionable. As kids get older, it can be tough to break bad money habits. So, start by setting some positive ones. In Australia, saving is an increasingly rare skill in particular, according to Trading Economics
. Australia’s saving rate (pre-COVID) was only 6% of households’ disposable income – and that was the highest figure seen in many years. Fortunately, this number has jumped up to nearly 20%; however, this can be attributed to insecurities people feel regarding employment and their finances during the global pandemic. Stimulus packages
may have also contributed to this. It’ll be interesting to see whether saving trends fall again after this pandemic is over; nonetheless, saving is definitely an important skill.
While the first thing you may think of when teaching your kids to save may include buying a ceramic piggy bank, there are some extra steps you can take to reinforce good money habits. To help you teach kids how rewarding it can be to save up for something they want, we outline some strategies you can use. For extra brownie points and to make learning about finances more fun, there are even money-saving games made for kids – I mean, how many of us learned about investment from Monopoly? Check out this list of 12 games that teach your kids about money from Self Sufficient Kids
(and yes, Monopoly is included; as is The Game of Life).
Without any further adieu, however, here are some simple teaching strategies or methods you can use to teach kids about money. Happy learning!
The Difference Between Wants and Needs
This strategy is best catered to older kids (7+), as younger children tend to have a more ego-centric view of the world, according to Piaget’s model of cognitive development. Prior to (approximately) seven, young children think at a more symbolic level and are not able to use logic or reasoning – or think of experiences outside of their own point of view. However, as they develop, they can start thinking a little more laterally to realise there are things that they enjoy (like ice cream), but they don’t need to have this to survive, nor do they need this everyday. They can differentiate between something that is necessary (whatever constitutes a normal meal for your household) and treats, for example. Therefore, you can start reinforcing these concepts to a kid at this age – that wants are for sometimes and needs are for always, and that one is more important, and the other is just nice to have.
A good place to start is by explaining basic needs to your child, such as food, water, a home, electricity, and savings. You can reinforce the concept of a want versus a need by readdressing this topic during shopping trips. Has your child ever asked for a treat in a confectionary aisle? Avoid giving in unless they’ve earned it or it’s a special occasion to teach them that wants are for sometimes and covering basic needs is more important. Or avoid the confectionary aisle altogether if you’re not ready for this yet!
Delayed gratification is becoming more scarce as generations have higher disposable incomes, and poor self-control and spending habits. Teaching your kids young about setting a goal to reach in terms of saving can be an extremely helpful tool for them when one day they decide to make a big purchase (perhaps a car or house).
From a psychological standpoint, this is also a great lesson on self-efficacy, where a child learns that they can achieve something when they make a decision to try something new. Children with higher self-efficacy tend to have higher self-believe and self-esteem. Remember the Little Engine that Could? He set a goal, persevered, and felt better about himself at the end of the hill. Believing that ‘if I try, I will succeed’ is an incredibly empowering tool for kids, especially in relation to their financial capabilities. As a parent, guardian, or care-giver, you can encourage this process through motivation and pointing out the kid’s strengths and helping them problem solve.
Here’s an example scenario. Say your child wants a new pair of rollerskates – get them to make a vision/ goal board and help them write out SMART (Specific, measurable, achievable, realistic, and time-bound) objectives that can help them reach their goal. Their objectives don’t even have to be money-specific, if you can think of other ways they can earn their rollerskates. For example, you can link this to academic or health objectives for a certain duration, until the agreed upon date. This of course means you will need to follow through with your end of the bargain, however, only if your child has with theirs. This will also teach your child the value of a strong work ethic.
Let Them Earn Their Own Money
When you believe they are old enough, you can even start giving them a weekly allowance for doing some basic chores around the house (it really doesn’t have to be much!). Remember that they should understand that money isn’t earned by doing nothing. This is completely at the parent/ guardian/ caregiver’s discretion but an example is starting with $5 a week for washing the car, doing the dishes, walking the dog, or a combination of these. Teach your kids that they should put some away in a long term account that you can set up for them (many banks offer a youth bank account with high interest to help their savings compound), and the rest is theirs to decide how to spend. To help them understand saving towards an expensive good, help them create a budget – again, use goal setting to help them focus on what they want and how they’re going to get it.
The Importance of Paying Expenses Before Recreational Spending and Living Within Their Means
This stems from the difference between needs and wants. They should understand the difference between expenses (reoccurring, necessary expenditure) and leisure spending/ variable spending (similar to needs and wants). When they are old enough to be more responsible with money, encourage them to manage their own expenses. Teach them to always cover their basic expenses before unnecessary purchases. For example, maybe they have a game subscription that they have begun paying with their own money from a casual job, or maybe they have to spend money on weekly transport to and from school. As they get older, the idea is to assist them less and less so that they can be self-sufficient with their finances and learn how to be responsible adults with their money. Teaching them to have enough money to cover these expenses is a valuable lesson as in the real world – you can’t avoid paying rent for the week because you spent your money on video games, lollies, and clothes!
The Earlier you Start Saving the Quicker it Grows Due to Compounding Interest
As mentioned, youth saver accounts with high interest are a good way to go while they’re young. Use the idea that their money is ‘growing’ as an incentive for saving. Encourage them to deposit money into this account and not touch it, except of course unless it’s an emergency. Let them track their savings to allow them to visualise their savings – there are many apps that can do this. It may also be a good time to start teaching them about the different types of bank accounts and credit systems, to consolidate things they may already understand from school and put it in a real life context. Let them plan what they’d like to invest their money into when they are able to access it – help them see the bigger picture. Instead of a small purchase now, their savings could be a new car, or even a house deposit. If you have the financial means, you can even encourage their saving by making contributions on top of their savings - this is particularly helpful if your kids attend tertiary education and accumulate a HECS debt. For example, you can match their savings or offer a dollar per figure saved. Another tip is to help them with a budget spreadsheet - there are plenty of free templates online!
Modelling Good Habits
Overwhelmingly, kids tend to learn their spending habits based on their parents. If you can’t hold out on gratification-based spending, they won’t learn to either. If they see you withholding something rewarding for the whole household (or even just yourself), they will learn to also make sacrifices. It may not be what you want to hear, but sometimes you have to practice what you preach.
Those are our top tips when it comes to teaching your kids good money habits. Remember, your kids are your greatest investment. Put priority on teaching them good habits from an early age and you can set them up for life!
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