"I have two children, aged 10 and 15, and just wanting to know how I can teach them about finances and how to start making good financial habits now in a way that they can understand."
- Question from Effie in Brighton, SA
Top answer provided by:
Matthew Timms
Great question Effie, and as a parent we always want to continue to do better for our kids.
Having your children develop good financial habits must be tackled from two different approaches.
First, it is about your own financial habits and the imprint you have on your children.
Forbes had a fantastic article called “Science Says You Really Can Blame Your Parents For Your Bad Money Habits”. We won’t go into the science of imprinting good financial habits, it’s just important to know it will have an affect on your children whether you like it or not.
So, starting with self-reflection, you need to understand your own feelings towards money and how they are projected in front of your children, and this is no easy task. For example, my wife and I had very different upbringings when it came to money. My parents always scrimped and saved and ran a very tight budget, whereas my wife’s family was about living and enjoying the moment.
Neither way is wrong, and they are possibly just copying their parents without even knowing so.
If you have good money habits, say you follow the bucketing approach made famous by the Barefoot man Scott Pape, then share that with your kids, it is absolutely okay to talk about your finances with your kids.
If your own financial position makes you stressed, we need to tackle that first before helping your kids with their own budgeting. I realise it can be a difficult time financially right now with the rising cost of living, but, if you can show your children how you can handle your finances during this time, well, that should have a pretty powerful imprint. Think about how you want your children to treat money and emulate that.
The next part is about teaching them about how to handle money and this can be really fun. (Says the financial planner.)
There are tools out there to help like Spriggy, which can be great given we live in a cashless society and can help them better understand their ability to save and spend before entering the real world. But, for some reason, I prefer the more traditional method, of giving our children physical money.
Given your children are 10 and 15, they would (I presume) have packed lunches for school each day. How would your children go if you gave them $50 at the supermarket and buy what they need for school?
Will they stuff up the first week and run out of food? Absolutely. But here is the thing, do you want that to occur now, while they are living at home, or when they move out of home for the first time?
The trick will be about making sure there is enough money to achieve the goal, but also, if they are smart about their spending, they will have money left over to reward themselves.
Next step is about understanding utility (which is the unsexy word used when describing joy). We discuss this with clients at Funded Futures as part of our budgeting workshop. We won’t ever tell you not to spend your money, but we do ask you, if, looking back on that spend, you enjoyed it.
Buyer’s remorse is a real thing, but sometimes it needs someone else to point it out. No doubt when your kids start saving, they will spend the money on small cheap trinkets, lollies, or soft drink. It will be your job to challenge them on what they would really want. For my eldest it is Lego, it is his driver, (and the ultimate bribe as a parent).
A lot of poor spending habits, or failed ability to save usually stem from not having solid goals to work towards. You need to help your children with that, for instance, if your child wants the Jurassic World T-Rex Breakout Lego set for $199.99, you need to help them understand that it means they will need to save $5 a week for the next 40 weeks. Not only that, but you will need to help them track their savings so they can feel the excitement as they near closer to their goal.
Along the way they might miss a week or two (which will definitely happen), this is where you help them recalculate their goal, maybe they can save an extra $2.50 a week by doing extra chores or being stricter with their lunch budget. This could shave 13 weeks off their total saving time.
So, to recap, we are going to take a two-pronged approach to helping your/our children develop healthy financial habits.
First, we are going to review our own finances, and how we treat money, as how we treat money in front of our kids is going to have the biggest impact on how they treat their money when they become adults. Once we can handle money confidently, and have meaningful control over our spending and saving, our kids will subconsciously do the same as they become adults.
The second part is getting them to handle their own budgets now, while they have you as a safety net. As suggested, I would give them money to do their own school lunch shopping. It is important to let them fumble around a bit, but also, help them plan and map out their lunch needs. This will help them meal plan and run a budget before they even leave home, and there is a theory that if they pick it, they will eat it.
The next step to that is helping them understand the enjoyment they can get from spending money. Buying lollies will always give that instant gratification hit, but you need to challenge them around something they really want, help them break it down in to manageable steps.
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