"Do you have any advice or tools to help me teach my children (ages 6 and 17) about finances and good financial habits?"
- Daisy in Joondalup, WA
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What a great question! You can find some common approaches to educating kids about money on the MoneySmart website. There are also many books written on the subject including, Scott Pape’s The Barefoot Investor for Families, Dave Ramsey’s Smart Money, Smart Kids and Jai and Marlies Hobbs’ FLY: Financially Literate Youth.
You can also have a read of our recent blog on the Bridges website covering ‘Four ways to teach children healthy money habits’.
Personally, I believe a multi-faceted approach is required. It is not enough to just talk to your children about money – you need to show them what it means, where it comes from, where it goes (especially, those invisible expenses – like utilities, rent, mortgage payments, school fees etc.) and what happens when there isn’t any (or why it is important to save some for later).
It may help to establish an action vs consequence link in your daughters’ minds. For example, to establish linkages between the activity that is the source of income such as employment or investment and receiving money as a result of that activity. In my mind, the best way to do this is to now and again physically bring your children to work with you (if you can) and let them observe what you do to earn your income. It would also help showing and explaining to your child (especially, the teenager) how much exactly you earn per hour, what you give to the government in taxes (and why) and then translate this into your and their purchasing decisions. For example, if you earn $30 per hour after tax and then your daughter asks you to buy her a new iPad, you can tell her: “This iPad costs 20 hours of mum’s work. And that’s without me earning anything to pay for our home and food.”
Be careful, however, with using money as a reward for chores etc. Psychologists often speak out against parents paying children for the chores, good grades etc. because it takes away the child’s feeling of security of belonging to the family and may create an unhealthy entitlement to rewards. A renowned family psychologist Marina Melia in her books Our Poor Rich Children and Leave Your Kids Alone! talks about setting up an agreed system where a child (like everyone else who belongs to the family) receives an allowance but there are strict rules and limitations to this allowance that are consistently followed by the parents. For example, if your daughter wastes her allowance on something and asks for more money, you should be prepared to say No firmly. There is no need to “punish” your child by not paying the next allowance but the allowance does need to be approached very much like an income that is regular but limited.
Finally, the most important, in my opinion, the thing about teaching someone good habits is to develop and demonstrate those habits yourself. Children, like all of us, learn from examples they observe and will completely ignore what you say if it doesn’t match what you do.
Disclaimer: This is general advice only and is provided for general information only, it is not advice. It has been prepared without taking into account your particular financial needs, circumstances and objectives. You should consult your own financial adviser before making any investment decisions.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.