Provide Your Kids With Basic Financial Skills And You'll Retire Earlier

It pays to teach your kids about money. In an increasingly cashless society however, it’s not always easy.

But if you don’t, somebody else might, and that’s not a risk you want to take.

With a small investment of time, everyone can provide their kids with a basic financial education that will give them a genuine head start in life.
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Here’s how:

Pro Tip # 1 - Be The Example

Kids learn most of life’s lessons from their parents, so whether you like it or not, kids are modelling your behaviours.

If you want financially savvy kids, you need to set the example.

Do you save for things you want or just flip out the credit card? Do you turn lights off when they are not needed? Do you gamble? Do you argue about money?
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Your behaviour lays the blueprint for theirs.

Pro Tip # 2 - Give Them Responsibility

Giving you kids responsibility is a great way to teach them the realities of money and life.

For example, challenge them to find a better internet deal. And give them some incentive to do it - maybe a % of what they can save.

You can do the same with your mobile phone and energy suppliers as well.
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These are real life lessons that will stick.

Pro Tip # 3 - Explain How A Loan Works

Going through your loan statements with your kids is another brilliant opportunity for financial education.

The shock on our kids’ faces when they saw how much interest would be paid over the length of our home loan, is something that stills sticks with me.

We did some basic maths too. What if we could get a lower rate? How much interest would we save. What else could we do with that money?
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The lesson – loans are sometimes necessary, but at what cost. There are much cheaper ways to own things.

Pro Tip # 4 - Encourage Them To Find A Job (And Help Them Get One)

Kids need to understand that money doesn’t grow on trees, and in fact, it’s very hard to come by.

Thankfully there is an easy solution – a part-time job.

This is not all about the money, this is just another part of a real-life education.

It teaches responsibility, reliability, how to work as part of a team, and even how to read an employment contract or understand how superannuation works.
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And with all this responsibility comes the biggest benefit of all - improved self-esteem. 

Pro Tip # 5 - Pocket Money Is Not An Allowance

If they are not ready for a job, you can still teach your kids that they don’t get money just for the sake of it.

Pay them for the work they do around the house - keeping their room clean, washing the car or mowing the lawn. This helps them understand that money is earned, and not given away.
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And of course, that means that if jobs don’t get done, there’s a consequence - no money!

Pro Tip # 6 - Keeping Track

So, now that they are working, what will your kids do with their new found wealth? Will they blow it? Or save for something important, like their first car?

If you haven’t already, now is the time to have the budgeting talk. I know the mere mention of budgeting is enough to make us wince, but if your kids don’t measure what money is going where, they don’t have control over their situation. 

Make it fun! Fortunately, there are some excellent apps that help them track their spending and saving. Here is one you can download for free from the Governments Moneysmart website

https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mobile-apps/trackmyspend

No computer. An old-fashioned spending diary will work just fine too. More on that here:
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https://www.moneysmart.gov.au/managing-your-money/budgeting/spending

Pro Tip # 7 - Setting A Savings Goal

Once they have grasped the concept of budgeting, you could introduce the idea of setting a savings goal, so they get a sense of forward planning.

While they might know how much something costs, kids often don’t have a clue about how much money they need to save so they can buy it.
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Show how putting aside small amounts regularly will grow in to something worthwhile.
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Even better, show them that if they do more work, they can save more and get to their goal quicker. 

Pro Tip # 8 - Help Them Understand Opportunity Cost

That’s just another way of saying “if you want this video game, you won’t have the money to buy that new dress”.
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Your kids should be able to weigh up the pros and cons of financial decisions and realise that each decision has a consequence. 

Pro Tip # 9 - Give Them The Responsibility Of Their Own Bank Account

Eventually, you should be able to set them up with a simple bank account if the above has been going to plan.  This takes money management to the next level, and it will prepare them for (hopefully) managing a healthy account balance when they get older.
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Then comes investing, perhaps a story for another day.

Pro Tip # 10 - Explain The Dangers Of Credit Cards

There aren’t many guarantees when it comes to money, but I can guarantee you this - credit cards have caused more problems than they’ve ever solved.

Explain the dangers to your kids. Credit cards are just too easy to flip out – don’t let them become another credit card victim.

​And finally, there is the age old question.

Should you charge your adult working children board OR allow them to live at home free, so they can accumulate savings?

​I’ll declare my conflict of interest here and say that I was charged board, as I did for my kids. I thank my parents for the lessons it taught me, and my children too (in their weaker moments?) have begrudgingly thanked me for not giving them a free ride either.
 
Making your kids pay their way (or at least partly), is just another part of the real-world education. It demands of your children some financial responsibility. There are no free lunches and the sooner young adults understand and prepare for that, the better off they will be.
 
Other points to consider are:

• It will generally be a much cheaper option than moving out of home anyway. It’s just a small step towards the costs they will face in time.
• If kids are not charged board, there’s no guarantee they’ll do anything sensible with the savings
• If parents are concerned about their children getting on to the property ladder, and the household can afford it, they can set that money aside (best without their knowledge) and provide that as a gift down the track. 

 
Whether you choose to charge board to teach life lessons or to lessen your own financial load, how do you calculate how much board is appropriate.
 
There are a couple of different approaches:

• Charge a % of what they earn, 20 to 25% is common
• Charge a % of the costs – Work out the costs for food, power, transport and housing and charge a % of that. If there is 4 in the household, then charge 25%

 
In my experience, most parents are charging between $100 and $200 per week, depending on what other help is provided around the home.
 
I have a client who charges her son 20% of earnings, and that’s only if he’s saving. If there’s no savings, the board goes up! Luv it!

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Important - This information is shared with you purely for the purpose of financial education. It is based on generally available information and is not intended to provide you with specific financial advice or take into account your objectives, financial situation or needs. You should consider obtaining financial, tax or accounting advice on whether this information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. See full Terms and Conditions here.