Posted on 02/04/2020
As parents, we teach our children good manners, respect, acceptance, and many other important life lessons.
But one of life’s most essential skills – how to manage money – is often overlooked.
There’s no set age to start teaching your children about money, but studies indicate the younger the better. In fact, a report by researchers at the University of Cambridge revealed that kids’ money habits are formed by age seven.
Luckily, you don’t need to be a financial genius to teach your child good money habits, just follow our top five tips.
Tip #1: How do you talk about money
Our attitude toward money has a lot to do with our upbringing.
Before you start teaching your kids about money, ask yourself a few questions:
- What attitudes to money am I exhibiting to my children?
- How is money spoken about in our household (positively or negatively)?
- Am I keeping track of my money, and am I explaining this to my kids?
It’s likely that your parent’s attitudes have influenced your own behaviours when it comes to money – so think about the impact your attitude toward money is having on your kids.
We understand that it can be uncomfortable talking to kids about financial issues – especially if you’re on a low income or a strict budget – but a survey from the US found that the children of parents who spoke to them about money at least once a week were more likely to display better monetary judgement.
Talking openly about money with your children can provide them with an appreciation of the concepts of hard work, effort and value, believes Carly Sawatzki, Lecturer at Monash University.
“Financial hardship – living on a limited income and going without – can be just as useful in shaping financial understandings as the experience of growing up rich,” she said in this article for The Conversation.
“The experience of financial hardship is not lost on children…children for whom money is a limited resource bring valuable insights to their financial literacy education at school. There are ways that parents and teachers can sensitively tap into these insights during lessons.”
Tip #2: Teach the importance of physical cash
The advent of digital banking and credit cards means children don’t often see physical cash changing hands in day to day life.
For many kids, a lack of physical cash means that money has become an abstract, ‘invisible’ resource – with the plastic card in your purse or wallet representing an endless source of money (if only!).
It’s important your kids understand where money actually comes from, and that it needs to be earned, instead of grown on trees.
A ‘cash’ reward for doing chores around the house – known as pocket money – is a great way to help your child understand how money is earned, and the tangibility of physical cash.
It will make it easier for your kids to establish the link between cash and digital money down the track.
When possible, try and use cash for things like groceries, so that your child can see the transfer of physical cash to pay for things.
At the checkout, explain to them that having a job and going to work is how you earn money, for example – in the same way that they earn pocket money for doing chores – which allows you to then buy groceries for the family.
Tip #3: Help your child understand the difference between ‘needs’ and ‘wants’
Teaching your kids the difference between needs and wants will help them establish financial priorities – which lays the groundwork for teaching them about budgeting.
Each time you make a decision to buy (or not buy something) around them, make it a teachable moment. Take the time to explain to your child that the toy she thinks she needs isn’t as important as the food you need to buy to keep your family fed.
A great way to teach the difference between needs and wants – particularly in young children – is to read books together on the subject to spark a discussion.
A good book to start with is ‘Charlie and Lola: I Really, Really Need Actual Ice Skates’, by Lauren Child.
Lola is absolutely certain that she must have her own skates so she can be the best skater in the whole school. Charlie reminds her that her yo-yo and guitar – which she really, really wanted – ended up unused in the closet.
Tip #4: Teach budgeting basics
Teaching your children to budget, save, and monitor their spending from an early age provides them with financial discipline, and shows them how to live within their means.
A simple way to teach kids about budgeting is with the “three piggy bank rule”.
Every time your child receives money:
- 45% of money should go in the ‘savings’ piggy bank
- 45% of money should go in the ‘spending’ piggy bank; and
- 10% of money should go in the ‘sharing’ piggy bank.
Before your child decides to spend the money in their spending piggy bank, teach them to ask the following three questions – why do I want this, do I really need this, can I really afford this?
You should give your children most of the control in this situation. They need to learn how to manage their money, and, most importantly, learn from their mistakes.
Tip #5: Set goals with your child
Setting money goals with your child teaches them good money habits, and the value of working for money. Plus, it can be fun!
For young children, make the goals simple and achievable in a short time, and for older children, make the goals more challenging.
Remember to make sure that the goals your kids are working towards are achievable and not unrealistic – and celebrate when their goals have been achieved.
You can do this by helping them track their savings progress using a chart or savings jar, which gives them the intrinsic motivation to practice delayed gratification, and start thinking critically about saving and spending money.
Want more tips and advice?
Complete our Teaching kids about money online financial education module, for access to a wealth of guidance and information – including tips for teaching older and younger kids about money.