The things we can teach our children are endless. But, one important thing we should teach our children well is money. How to save, how to be responsible and smart with money. Read more on a few ideas for teaching your kids about money.
Teaching your kids about money could be the best gift you ever give them.
Your mini-me watches your every move.
Picking up clues on how you interact with people, go about your daily life and words you use in different situations.
They love to mimic your behaviour (the good and the bad). But often they miss the context, unable to read the situation. It’s why they blurt out inappropriate things when visiting grandma or while you’re in line at the supermarket. Which can be hilarious, if not a little embarrassing at times (we’ve all been there!).
They also watch you with money.
Your little shadow observes how you talk about money, how you spend it and how you make decisions about it.
How to talk about money with your kids
When was the last time you talked about money? And we’re not talking about the No, you can’t have that, at the shops conversation.
We’re talking about the, here’s how we get money and here’s what we do with it, conversation. If it’s been a while or never, here are three key lessons every kid should know about money.
Lesson 1: the exchange
Time, Goods and Services
The lesson – the exchange
Money is always part of an exchange. You must do something to get it or hand some of it over to get something.
Exchange for time (working)
Exchanges for goods or services (buy stuff or experiences).
Or a gift, usually exchanged at birthdays or special occasions.
Understanding how money works instils good work ethics from a young age and it will increase the understanding of how value is attributed to money (and how you spend it).
What you can do
Create your own exchange at home. Commonly referred to as family chores.
Sit down and explain everyone contributes to living together in some way and allocate everyone a job. When setting tasks do what works for your family. There’s no hard/fast rule.
But here are some examples to help guide you.
- putting their toys away
- cleaning their teeth
- getting ready on time
- watering plants (with you)
- putting their kindy bags in their room
School age kids
- keeping room clean
- setting the table
- doing their homework on time
- putting their dirty clothes in the wash basket
- taking the bins out/in
- feeding pets
- minding siblings
- doing the dishes
Want to know the going rate for pocket money these days?
According to the 2018 FPA Living the Dream report most kids start earning pocket money from about 4 years of age.
Lesson 2: money is real
Swipe, tap, shop online. It’s so convenient.
But it’s not helping any of us remember the value of money, especially kids growing up in a world where money is invisible.
The $500 iTunes bill this mum wasn’t expecting
Like most mums, Leanne would give her kids her phone to play with while they were out. It was an easy way to keep them quiet and get a few minutes of peace.
“I thought I had it all worked out. I downloaded the games and approved what she did. Little did I know, my little darling (said through gritted teeth), watched me download, saw me put in my password and remembered the keypad movements.
So, while I was enjoying my latte, she was tapping yes to buy coins, strange weapons and extra lives to play her game.
I really had no idea until I saw my credit card bill and saw about $500 in iTunes purchases over a few weeks. She was oblivious as to why I was upset with her. After I calmed down, I realised I’d never talked about money and when it was ok to spend it. To her, it was just tapping a button that was stopping her doing what she wanted’.
The lesson: money is real (making money visible)
Introduce the tangible aspects of money;
- handle cash (save and spend)
- show them savings growing (visible).
There’s something about handing over cold hard cash that makes you think about how you spend.
Without feeling the pain of handing over cash, it’s easier to overspend. That’s why we have become a society that increasingly relies on credit to pay for our lives. Living outside our means. Keeping up appearances.
When you find a way to make money physical, visible and tangible it helps you keep track of money and encourages good decisions (and staying out of debt).
Ideas to make money visible for your children include;
- Giving pocket money in cash $1 coins so it’s easy to divide into their buckets.
- Getting kids to hand over money at the shops when buying things
- Using glass jars to show how to divide your money
- How good delayed gratification can feel. When they have reached their savings goal, take out the money and feel the joy of achievement as they hand over their cash.
- Show them bank account statements with their account balances going up.
- Have a family chat about money. Explain where your money comes from and where it goes. (i.e mortgage, education, food, bills etc)
- When you buy things, try using cash for a while instead of always handing over the plastic. It may even make a dent in your savings.
- If you make money visible and regularly talked about, you’re normalising good money behaviours. Behaviours that should set them up for a good relationship with money from the get go.
Lesson 3: money has a job
So now you’ve taught your kids where money comes from it’s time to teach them about how you give each dollar you have a job.
The easiest way to do this is by using simple rules of thumb.
Not all dollars are created equal. It’s up to you to decide what you do with it and the ‘buckets’ you place it in. What’s important is that you give each dollar a job in order of what matters most to you.
To make it easier to decide we categorise money into buckets;
Some for now, some for later, some for fun and some to give others.
It helps set up good mental accounting habits in children (and adults).
How to show your kids what to do with money
There’s a reason Scott Pape’s book, the Barefoot Investor has stayed on the best-seller list for years in Australia. He uses simple rules of thumbs to help guide good behaviour and it’s easy to follow.
Focus on teaching your kids the most simple and practical behaviours possible. We recommend picking four jobs for money and allocating each a percentage based on money goals.
1. Save - teach a habit of automatically saving first.
Many people make the mistake of approaching savings once they pay for everything they want to do. This makes it easy to spend everything you have and saving isn’t a priority.
But if you teach savings first and work towards a goal it keeps you on track and working towards it.
2. Spend – help them set an amount they can safely spend after they have put money away for savings.
Even though you’re probably paying for most things, it doesn’t hurt to give kids something they are responsible for. For example, you may decide that their spend portion is what they can have to spend at the school canteen, or as their dollar amount increases, that money pays for their movie tickets.
3. Fun – show them that money doesn’t have to be all serious and have a purpose.
You can spend just for fun as a reward for all the good decisions they are making with money. But the rule is, you must have the cash.
Remember, no judgement. If you little one wants to spend money buying the latest gadget. Let them. It’s not your call to make.
Idea: Create some family fun and anticipation
Come up with some fun thing you all want to do. For example, a trip to the zoo, a trip to the ice cream store etc. This also teaches the value of experiences over things and the appreciation of delayed gratification.
*everyone contributes the same 10% regardless of how much they earn in pocket money.
4. Give – help your kids know the joy of giving by planning for it. Decide a local charity or cause close to your heart and commit to giving regularly.
The three most important lessons you’ll teach your kids about money are:
- Money is an exchange
- Money has a job
- Money is real
If your kids master these three concepts you’re setting them up for a life of good money habits.