When brains are young and sponge-like, they absorb. But, learning is a long process and children can be demanding and impulsive. When you drag them screaming from a toy store the concept of ‘save now, buy later’ doesn’t seem to naturally emerge.
So what can you teach your children to help them save money in the future?
Set a goal to save money
The first step to all savings plans is to set an achievable, desirable goal. Us adults are obviously thinking about family holidays, new cars, a bigger house and our eventual retirement, but children often have simpler goals.
Though it’s tempting to cave and buy your children what they want for their birthday, it might be better for their education if they purchase the thing themselves (then you buy something different for their birthday, so they still receive a gift).
Sit your child down, find out what they are eager to obtain, then help them work out what it will cost. You can break this down into how they should save, but we’ll get to that shortly.
Patience and discipline
Once a goal is in place, your child needs to know all about discipline.
When a kid has a $2 coin in their hand, the temptation to run to the nearest shop and buy something sweet is probably irresistible. However, that $2 could be better put to use in the piggy bank/money jar/bank account to move them towards their goal.
It might be tricky, but you need to encourage your child to put that money aside. Ensuring their goal is a short term, achievable one might help start this at first, as they will receive what they want sooner, rather than later. This would pave the way toward good spending habits, helping them save for something larger.
Set family budgets together
Joline Godfrey, author of Raising Financially Fit Kids, had a great quote in a US News article on this subject: “Like mastering a new language, developing athletic skills, or becoming a master musician, financial fluency requires time, practice, intention, the acquisition of financial language and values.”
Are you writing a budget? Let them help. They might force you to give up your favourite coffee, but you can encourage them to give up something as well. This is a great time to show them all they need to know about bills, taxes and retirement savings.
Work for reward
Spoiling your child with a regular high income might work against your lessons. Rather, you could actually choose to limit the pocket money you give to your child, inspiring them to work in order to earn more, save in order to have more for the future, or even innovate to create more.
For older kids, this could be a real job – such as a paper run, or cleaning dishes at the local restaurant. However, younger children can still work to earn a living within your own household. Dishes, vacuuming and other chores you could boost their pocket money and teach them some valuable life skills about working for money in the process.
Learn about available financial resources
When did you learn how credit cards worked? Have you ever put your savings in a high interest bank account? Teach them about the different products on the market, and what each of them mean.
If you need to brush up your credit card knowledge, check out our article, Credit Cards Simplified.
For young adults who are starting in the workforce, consider things such as the government’s superannuation co-contribution. If your child is a low or middle income earner and makes personal (after tax) contributions into a superannuation fund, they could receive up to a maximum of $500 from the government. Find out more about co-contributions on the Australian Taxation Office website.
Show them how investing works
Why not teach them about the benefits of investing over the long-term?
A useful place to start is superannuation. We’ve all got it, and it’s probably one of the longest investments you’ll ever hold. Show them your superannuation statement and explain how compound interest works.
You might even consider setting up a little investment fund on their behalf, so they can watch it grow over time. Make sure you speak to a financial advisor before making investment decisions such as these.
Lead by example
Arguably the best way to teach your children important money skills is to lead by example.
If you actively set personal and family goals, budget and save, exercise discipline and patience, and show the rewards of saving and working, there are strong chances these traits will emerge in your children.
If you are considering having income protection to protect your children and family financially, visit Virgin Money income protection for more information.
How do you teach your kids about money?