To help their children live financially fit lives, parents need to set the tone – and the earlier, the better.
Parents are the main influencers when it comes to instilling efficient financial habits in children1, so how can we prepare the younger members of our family to manage their money?
State Partnership Manager at ME Bank, Glen Maestri, says: ‘From an early age, children form impressions based on how their parents behave, so it’s important that we talk positively about money. Discuss with your kids how you work to earn money. Support that conversation by creating a pocket money or chore-based scheme for your children.’
GET THE WHOLE FAMILY INVOLVED
Communicate. Discuss the rules you’ve set. For example, have you set a maximum gift amount for birthdays?
Define ‘donation’. If your household has a pocket money scheme, ensure ‘grandparent donations’ either have tasks attached or an explanation that grandma is contributing from her allotted donation jar.
Reinforce the strategy. If your child is saving for a big-ticket item, rally the rest of the family to match your child’s savings.
Start intergenerational discussion. Ask grandparents to share their financial life experiences.
According to parenting resource the Raising Children Network, giving pocket money creates an opportunity to educate children on saving and spending thoughtfully, as well as the consequences of losing money or giving it away2.
Having some financial responsibility means children learn to make choices about money and the concept of waiting while they save.
For young children, you can create a jar system of ‘saving’, ‘spending’ and ‘donating’, whereby any money received is divided between the three containers. Once they’ve reached their goal, they can spend their ‘saving’ jar.
‘It’s important to explain to young children that the savings jar is also a spending jar for the future,’ says Glen. ‘They will eventually get to spend it, but they’re accumulating money for their goal. Once they’ve spent their savings, they will need to start the process again.’
It is crucial that children understand the value of money by the time they reach primary school.
‘When kids are young, they tend to think there’s an unlimited supply of cash,’ says Glen. ‘Correct that thinking when drawing money from an ATM. Explain that to get money out, you have to work first; and the amount that’s in the bank will depend on how much you have worked and saved.’
Keeping it relative is imperative, so place a primary school lens on the big picture and couple your trip to the ATM with a visit to the shops.
‘When you are shopping, link the conversation of how much a certain item of clothing costs with the amount of pocket money your child receives. Explain how many weeks of chores they would need to do to accumulate the amount of money required,’ suggests Glen.
You can reinforce the concept of saving by opening a bank account for your child. There are a number of great banking initiatives available for children and once your child’s account is open, you can help them set a savings goal.
By repeating the goal/savings process, you’re bolstering a foundation of empowerment for your children.
Encourage your teenagers to look for a weekend or holiday job. ‘When teenagers and young adults earn their own money, it gives them responsibility, opportunity and choices,’ explains Glen.
While it might be too early for teenagers to start paying towards basics, like board or household bills, having a small income of their own means they can start covering some ‘extras’. Encourage your teenager to start paying for their own mobile phone, downloads, entertainment and special items of clothing.
Many young people start their first full-time job while they are still living at home.
First jobbers or apprentices should start to contribute towards general household expenses and petrol. This is an opportunity to teach your child the benefit of hard work and investment before they head out into the world on their own.
‘Consider accumulating their board in a separate account and presenting the balance back to them on their 21st birthday,’ suggests Glen. ‘It reinforces the message that the commitment and sacrifices they have made have been recognised.’
This strategy helps to prepare your young adult for the future. ‘Whether or not you re-gift their board, contributing to household expenses prepares them for the realities of life,’ says Glen. ‘When they leave home, they’re going to have to take on the full responsibility of their own household commitments.’
BY FELICITY BONELLO | 15 SEPTEMBER 2014