Lessons for parents

How you can prepare children to be financially savvy adults

PREPARING adult children for financial independence is now a critical element of parenting.

You being a top money mentor will save your kids big dollars and enhance your relationship.

Around 43 per cent of 18-24 year olds live at home with mum and dad, and 70 per cent say it’s because they are saving or can’t afford to move out. Unfortunately, these adult children become a serious financial drain on their parents’ retirement plans.

In fact, Aussie parents spend a combined $235 million a week on adult children living at home, and 10 per cent of those parents say it is a financial strain on the family budget.

The reason for the strain is that only 20 per cent of adult kids living at home actually pay full or partial rent, and only 14 per cent help pay for any bills. To be fair, though, 60 per cent help with household chores and other non-financial tasks.

The solution is to cut adult kids free and plug that massive financial leak. But, first, arm them with the right money management lessons for them to survive and thrive financially.

A good start is to give them Kochie’s 11 Step Money Plan … To a Better Life. Then follow these steps:

SWEAT THE DETAIL

Managing the small everyday financial decisions is where the big savings are made.

So teach adult children to ask themselves two questions before paying for anything: 1. Do I really need this? 2. Is this the best deal I can get for this product or service?

If they get into this mindset on everything from a cup of takeaway coffee to big ticket items like fridges and cars, they will be amazed at how much money they’ll save over the long term.

GET RICH SLOW

Today’s Gen X and Gen Y seem to be more in a hurry to be rich than previous generations – maybe it’s the power of social media and reality TV.

Teach your adult kids the power of getting rich slowly. A lesson in compounding (where money in a savings account earns interest on past interest) certainly grabbed the attention of our four adult children. They had no idea how compounding interest rates could supercharge savings returns.

It’s important everyone understands that good returns are made from incomeproducing investments as well as capital growth alternatives, even when interest rates are as low as they are now.

HAVE DISCIPLINE

Another powerful lesson for our adult children was the introduction of “payday savings”. It started back when we were handing out pocket money. Every Friday, a percentage of the pocket money was immediately put into a piggy bank or a savings account. They adopted the habit with money from their part-time and holiday jobs and, eventually, when they started careers.

BE AN ENTREPRENEUR

Our society and education system is great at preparing us to be an employee. But look at the financial success stories in Australia and most are based on an idea leading to a successful business.

We should all be developing and encouraging the spirit of entrepreneurship in our children. Encourage them to start little businesses on the side and learn the successful tips from well-known entrepreneurs. In fact, 7 per cent of Australians (mainly under 35s) earn extra cash through the gig economy: Uber, Airtasker, Deliveroo, etc.

We also need to support them during the hard times and the failures, which will inevitably happen. But do not be suckered in to financing or guaranteeing an adult child’s business venture.

BAD DEBT IS THE DEVIL

Good debt is borrowing to build appreciating assets and investments. Bad debt is using credit to buy a consumable or depreciating item. It’s important the difference between good and bad is clear.

Just as the impact of compounding interest on savings is fabulous, compounding can be just as disastrous on borrowing – particularly credit card debt.

We find the friends of our adult children are being lured in to big credit card bills, supporting an unrealistic lifestyle. Encourage the use of debit cards instead.

BE A SAVVY SHOPPER

Give children the tools to shop wisely and the confidence to negotiate on everything.

Simple tips can include knowing that big brand names usually cost more, and sticking to a list at the supermarket.

These days, most retailers know they have to be competitive. It takes nothing to ask “Is that your best price?”.

DO A PERSONAL BUDGET

It should be the foundation of every Australian’s financial future: a personal budget.

Start by showing the kids when they’re young how you do your budget.

As they get older, do their budget and yours at the same time – make it a family ritual.