As we’ve touched on, teaching your kids about money from a young age (about seven or older) is a good way to set them up for good financial decision-making in their future. It teaches them good habits early, which are therefore harder to break. To extend on our last article, today we explore some additional skills and concepts that are the basis of good money management. While some of these seem a little complex for young children, the earlier they begin to grasp these concepts, the deeper an understanding they will gather as they get older.
Importance Of Adults Teaching Children About Money
Research by Money Advice Service
(MAS) has concluded that parental figures have a greater impact on their child's financial capabilities than education systems. According to their report, only 40% of children aged 7-17 reported learning about money management at school or college. Further, 90% of children and young people ended up turning to their parents to seek financial advice. That being said, only 60% of parents report they feel confident in advising their children about money. That’s why Shoebox Books is here to share some tips. Ultimately, the more financial knowledge and opportunities to handle money children receive growing up, the better their saving and spending habits are later on in life. So, let’s look at some of the most important lessons you can teach them.
Lessons To Teach Children About Money Management
Start Saving Early On
The earlier a child learns the importance of saving, the better they will be with this skill in future. If opening a youth saver account on their behalf is something you’re considering, it’s a great way to set up a concrete example of how saving works – they can even start growing their money from an early age through receiving compounded interest. If your child earns pocket money, you can teach them to sacrifice some of this money into their account to grow their money and save for something special. They will feel a great sense of accomplishment getting to their saving goal and earning their own reward.
Track Your Spending
As your child gets older and begins earning some of their own money, perhaps from a casual job, it’s time to start getting into the nitty gritty of managing finances. Identifying a clear idea on what it costs to live, as well as organising their spending habits and teaching them discipline around regular spendings can promote good monetary habits – this can be achieved through a budget that you can create with your child. Moneysmart.gov
provides a good template to work from that can be adapted to suit different lifestyles and stages in life. Otherwise, pick and choose your categories and add them to an excel spreadsheet (or get the young person who is most probably skilled with technology to do this) to create your own budget template. If you’re providing pocket money to your child, you can still go through this process with them to help teach them how to handle money.
While it can be challenging to teach children to think long term, especially when they have their whole life ahead of them, explaining the importance of super while they’re young can set them up with the right mindset. As well as understanding compound interest
, grasping superannuation concepts early – such as risk profiles, different kinds of funds, and contributions – is a great way to get a head start on good habits. Overall, understanding the long term benefits of delayed gratification can benefit children in having a greater understanding of how financially capable behaviours can relate to consequences later in adult life. A small sacrifice today is a larger reward tomorrow.
Look for Role Models
Children watch the behaviour of adults, particularly their parents or caregivers, and can pick up behaviours related to money management as well as general values. Therefore, it’s a good idea to model ideal behaviours yourself and set a good example when possible, to ingrain these skills and behaviours in your child. Even indirect behaviours on how you handle and treat money sends indirect messages about money, its value, and how it should be spent. We know it’s tough sometimes, but it’s important to practice what you preach when it comes to financial management.
The Consequences Of Credit Cards
While sometimes credit cards can be mishandled, there are occasions where they are necessary. Not teaching children how credit works can put them at a disadvantage. While you think you may be teaching them to not rely on credit by avoiding the topic, you’re actually leaving a massive gap in their knowledge about financial services. Besides, credit is not entirely unavoidable in life (or bad) – when they make the decision to purchase big items such as cars or houses, they’ll most likely need credit via a loan. Further, credit cards, if used responsibly, can work to one’s advantage. Teaching them the concept of credit cards and loans and all of the related requirements – such as fees, interest, and minimum repayments – not only builds their understanding of these services, but it could assist them later in life when it comes to buying something with credit within their means.
Credit cards do come with some perks as well, like frequent flyer points and reward points, and they can boost your credit rating – that’s only when used responsibly, however. That’s the key lesson in this topic, responsibility. A good credit rating, in turn, sets your child up with the best possible chance of getting a big loan approved in future.
More Financial Fun
Teaching your kids about money doesn’t have to be a chore – it can be fun. Thankfully, in the age of the internet, there are many free online resources and ideas
to inspire you to get teaching. From money bingo to makeshift shopping catalogues, there’s heaps of ideas to help develop real life financial literacy in your kids.
Don’t forget that before you can empower anyone else with financial literacy, first you must empower yourself. Shoebox Books can help with this. Shoebox Books’ qualified and trusted bookkeepers
are ready to help you and your small business become financially capable. Ask us about our services by contacting us online