My three-year old granddaughter has just started receiving pocket money. It may sound young, but she’s already interested in how money works and keen to spend it… whether it’s a sign of a financial genius or a shopaholic I’m not sure. Either way I reckon the earlier you begin teaching children about money the better chance you have of raising money-smart kids.
1. Start young
One of the greatest lessons you can pass on to your children is how to handle money. When your kids are pre-school age begin explaining what money is and show them the various shapes and sizes of coins. Tell them how you get money and what it’s used for.
2. Pay pocket money
The best way for kids to learn to manage money is to receive their own regular income from an early age. It will help them understand how much things cost and make choices between things they want.
When a child starts to understand the concept of earning money and then exchanging it for goods and services they are ready for weekly pocket money. For some kids this will happen as young as three or four, others might not be ready until they start school.
The amount you pay should be based on their age and what they do to earn the money. When my kids were growing up they had unpaid family chores like clearing the table and doing dishes. They then had specific pocket money jobs ranging from matching the family’s clean socks to washing the car. As your children get older what you pay also depends on what expenses it’s meant to cover.
3. Encourage saving
Children can begin saving as soon as they start getting pocket money. Ask your kids what they would like to buy with their pocket money. I’m guessing you’ll get told everything from a Barbie dollar to a first car. Explain if they put money away each week they will eventually have enough money to go out and buy it.
Get younger kids a fun piggy bank and put a picture of their savings goal on the moneybox as an incentive. You want it to be something achievable in the near term to keep their interest. My granddaughter is a Toy Story fanatic and has her own Ham piggybank she loves adding too.
Help older children do a simple budget on how their pocket money is being spent. That will show them, just like adults, where their money is going and how much they can afford to save.
4. Open a bank account
After your child gets the hang of saving for a year or two it’s time to open a savings account. The Commonwealth Bank’s Dollarmites Club for kids under 10 has been around since my kids were little and makes banking fun. St George Bank has a similar program, the Happy Dragon Club, for kids under 13.
5. Inspire teenagers to invest
There’s no subject at school teaching kids how to manage their own money and get out of consumer debt, they need life experience and your guidance. When your kids get to high school give them more freedom to manage their own money, particularly when they get a part-time job.
Start explaining the basics of investing and how they can grow their money by earning returns on their returns. A great way to inspire teenagers and get them interested in investing is to open a managed fund and commit to a savings plan together.
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Comments
I feel strongly that intelligent men like you need to be addressing this publicly, but I guess you must first address it yourself.
I am genuinely concerned about the young people of the world. I work as a counselor and see so many children on medication to cope with the confused messages that we adults share with them. They share with me their concerns as our leaders, of which you are one, do not seem to be complete in what they say... that they talk of a better world whilst still eating animals for example.
What do you have to say to them about this? You seem like a good loving man, so please take the time to explore this topic.
David
I have been teaching my 5 year old son the importance of saving money. When I recieved his last dollarmite account statement I was shocked to discover withdrawls for TFN WITHHOLDING TAX in September and November. The bank innitially took a very high handed approach advising me to "claim it back at tax time". The bank advised that childrens accounts with a ballance in excess of $1000 are required to advise a TFN or be subject to the CBA withdrawing TFN WITHHOLDING TAX on behalf of the taxation department. Two weeks after lodging a complaint with the CBA and it being refered onto an investigation team I still have not recieved an appology or reimbursment for the innapropriate funds withdrawn from my sons dollarmite account. Situations like this discourage children from saving! At 5 years of age my son understands "someone stole money from my bank".
Thanks for your post, it's really inspiring to hear people discussing financial literacy among young children. You raise some fantastic points and I think that many parents and children will find the site useful - congratulations .
I am a teacher and teach in a low socioeconomic area in south western Sydney. I am amazed that there is no money skills taught in schools.
I recently started a financial literacy website for children called mycents.com.au and I am really excited to see that discussion is starting :)
Thanks again and keep up the great work
Mathew
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