Every parent or grandparent has the same worry: will our young ones manage their money properly when they grow up? Australians’ median wealth is the highest in the world. So, a young Australian can look forward to having access to more material resources than their counterparts in every other country. If they can manage this money well, their life will be much easier. Here are our top 7 tips to teach good money habits to the coming generations.
Be a good role model
Do as I do is not as I say. It’s a simple truth. And that simple truth means one thing: the way we manage our own money has the biggest bearing on how our kids learn to manage theirs.
Our kids are watching us all the time. That gives us a great opportunity to talk about what we’re doing when we spend money. If you are comparing prices on two similar items, talk to the kids about that. If you are saving for a larger purchase, talk about that. Provide a commentary to go with what the kids are seeing. Over time, you will be struck by how well they absorb the lessons you are teaching.
Be prepared to say “we cannot afford that.”
These days, it’s easy to confuse our personal worth with our personal wealth. They can make it very hard for anyone to admit that something is simply unaffordable. Paradoxically, this means there is a simple way to economic freedom: when we realise that so much of our spending is done to keep up appearances, we realise how silly this is.
You will not hurt your kids by refusing to buy them things that are more expensive than they are worth. Sure, if you say yes they might experience a short-term gain on the school playground. But we are taking a long-term view, here. Learning not to try to impress people with expensive possessions will hold the kids in great stead for the rest of their lives.
Make sure they do their maths
It’s hard to manage money when you can’t add, subtract, divide or multiply. It’s an amazing fact that so many businesses go broke because the owners only add up the revenue but forget to add up the costs. Maths is the most important part of financial success.
Make sure they learn to read
That said, mathematics alone is not enough. At some point in all of our lives, we are faced with a contract which imposes financial obligations. Mobile phones, home loans, employment, the list goes on. Financial literacy is really just literacy applied to finance. So, encourage your kids to read and to think about what they are reading.
Many parents and grandparents (perhaps especially of boys) find talking books can be very useful for young people who would prefer not to read in silence. While not quite as good as physically reading, listening to words which convey a story confers a lot of the benefits of reading.
Let them make mistakes with small amounts
Many parents teach their kids to save by locking money away where it cannot be spent. People only learn to save when there is actually an opportunity to spend. Kids have to have money available if they are going to learn to manage it. And, of course, if kids have money available, at some stage they will probably mis-spend it. That’s okay. Regret is often the best teacher of all. So, let your kids blow small budgets while they are young – and then let them feel bad afterwards. You don’t want your kids first dud purchase to be a $60,000 sportscar bought with dubious financing arrangements. Let them blow $150 on brand name runners that they grow out of in a month.
Teach them to pay for quality
Everyone is tempted to buy the cheaper item. But so often the cheaper item really is an inferior product. As a long-term proposition, people who buy better quality items tend to buy fewer items. Over time, this means they spend less not more.
Discuss your own income
Discussing money can be taboo in many houses. However, if you really want your children to make good choices about their source of income, they need real world information about real-world income. Once they are old enough to be intelligently curious about it, talk to your kids about your own income. If it is a good income, explain why: you are doing something that other people value and you are being well paid for it. If your income is not so good, perhaps explain why again: maybe you didn’t get the opportunity to become qualified while you are young. You can see how either example can make a useful lesson.
Drawing the connection between work and income is another important thing for young people to learn. Particularly in the age of plastic, it can be difficult for young people to really understand how money works. So talking in depth about what you do to earn your income – and how that income makes its way to places like the kitchen table or family holidays – can be really helpful.
Whenever possible, let your kids see your workplace. Kids are very concrete: if they have actually visited where you work, they can much better understand and visualise how you earn your money.