Teach good money habits

Financially preparing children now will help them overcome money stresses as an adult. Here’s how to do it

A LIFE without financial stress! For most Australians it’s simply a dream.

For parents it’s a wish we all have for our children.

If we haven’t achieved it in our own life, let’s focus on setting our children up correctly to achieve it. We’re not saying give them a heap of cash or promise them a big inheritance – it’s more how we can financially prepare them now with the right skills and the right habits to overcome money stresses as an adult.

You can’t stop them going on a stupid spending spree living above their means, but you can provide the foundation for a financially comfortable life … and maybe make them rich.

Here are a few ideas on how to make it happen.

USE YOUR LIFE AS A FINANCIAL FIELD TRIP

Kids invariably learn their money habits from observing their parents. That thought can be a bit scary.

So talk about your financial decisions and lifestyle (we reckon you might think twice about some … for the better) with your children.

● Explain that monthly card statement is the financial consequence of “tap and go”.

● Run through the family budget and what things cost.

● Rationalise purchasing decisions on why you chose one product over another.

● Describe how you can buy shares in the retailer/bank/ airline you use and what that means.

In other words, be open about being a consumer.

But, make sure you are transferring experience or knowledge and not your own financial stress. Kids just don’t need that burden in their life when they’re young. Be positive and informative.

PROVIDE POCKET MONEY

We are huge supporters of providing pocket money from an early age.

While it might seem counter intuitive, pocket money is actually a great way to teach your kids important financial skills. But always make sure there are strings attached.

Concepts like budgeting, planning and goal setting can all be introduced using their weekly allowance

(make it monthly pocket money for teenagers so they budget for a longer period).

And if you connect the money to chores, or jobs they have to perform, they’ll very quickly work out the link between hard work and financial rewards. Just try not to muddy the message by showering kids with gifts or additional payments with no rhyme or reason, or get into a situation where they expect to be paid for any work they do around the house. There are “family jobs”, which are done for free as being part of the family, and there are pocket money jobs, which are extras that help you.

Be firm, fair and get involved.

Talk about what they want to use their money for and then help them get there.

Offer to set a part of their pocket money aside in a savings account each week, or buy them a piggy bank, to save for a significant purchase they want to make.

The big benefit of doing this with a formal bank account is teaching the value of compound interest – a lesson they’ll carry with them forever.

ENCOURAGE ENTREPRENEURIALISM

Encouraging your kids’ entrepreneurial tendencies is a great way for them to develop early business instincts.

Helping them to start a business like doing odd jobs or babysitting or running a lawn mowing service will give them a huge advantage because they’ll start to appreciate how economics, customer service and business works.

We have a young neighbour who puts out and brings in the rubbish bins for 10 houses in the street. He charges $5 a week, has been doing it since Year 4.

They’ll have to balance income and expenses, deal with customers, handle problems that might arise, but we guarantee they’ll be better for it.

If they display a keen interest in the business side of things, support them. They could be the next Mark Zuckerberg (Facebook founder) or Richard Branson (Virgin).

TEACH THE VALUE OF HARD WORK

A part-time job is an essential part of growing up. It teaches kids about responsibility, honouring commitments and the value of money.

Yes, they have a lot on their plate as they hit late high school and their study and social commitments start to pick up, but they still have to learn about balance. All our kids started working at McDonald’s as soon as they were old enough and we reckon that was crucial in developing the work ethic they have today.

START AN INVESTMENT CLUB WITH THEM

It’s never too early to start teaching your kids about investing. Why not do it with them?

With time on their side, kids are in a great position to benefit from the magic of compounding returns.

Start with explaining how shares work with practical examples.

For instance, if they’re drinking a soft drink or come with you to the bank or supermarket, explain that it’s possible to buy shares in the business that runs the company.

As they get older, why not suggest they participate in the ASX fantasy share market game? They can even compete against you to fuel a bit of family rivalry. Then why not put that experience into practise and start your own family investment club? Agree to put a percentage of pocket money, or money from a part-time job, away to invest in shares and you match them dollar-for-dollar. Research and make decisions together on the shares, managed funds or ETFs to buy into.

Armed with a great financial education around saving, working and investing, your kids will be in the best possible position to succeed financially when they grow up.