How to teach your kids about money (and why it matters)

There are plenty of resources available to help youngsters learn about money. A new Talk Money program by the Ecstra Foundation (of which I am a board member), is providing Aussie school students with the skills and knowledge to put their best financial foot forward.

The program sets out to teach children in Years 5-10 what they want to know about finance based on a national survey. Among the top three money topics that children said they were interested in, things like budgeting and saving ranked highly. What I found surprising with the results, was that our children also want to know about property and investing.

For older teens, accounting body – Chartered Accountants Australia & New Zealand, recently announced the development of the Treasurer’s Financial Literacy Challenge for students in Years 11 and 12 in partnership with the NSW Department of Education.

In today’s challenging economic times, it’s especially important for children and young adults to be armed with strong financial skills. On the plus side, Ecstra’s Financial Education in Schools survey found that financial education is highly valued by families, with 98% of parents agreeing it should be taught in schools.

However, financial literacy is not a job that should be left solely to schools. Lessons about money can be deeply enriching when they come direct from mum, dad or other carers. In other words, some of life’s most lasting financial lessons are learned at home.

So, how can parents provide effective lessons about saving, budgeting and investing? Here are a few ideas to get started.

1. Ditch the piggy bank

I don’t have anything against piggy banks per se. Most of us at some point in our childhood received a piggy bank. Maybe some of us still use them with our own children.

But let’s face it, piggy banks have serious downsides.

The most obvious drawback is that when we give children some cash, they stuff it in their piggy bank – and there it sits. Your child could have a tidy sum of cash, potentially hundreds of dollars, sitting in a piggy bank in their bedroom. Yes, piggy banks may teach children to save, but they don’t teach kids how to use their money effectively.

One of the most important steps we can introduce for our children is opening a bank account for them.

Children have an advantage when it comes to earning decent rates of interest on cash. Bank of Queensland for instance is offering 5.15% on its Future Saver for those aged 14-35. Great Southern Bank has a Youth eSaver account paying 5.10% for account holders aged up to 17 years.

Conditions apply to both accounts, and many other high-return junior savers. However, having a bank account doesn’t just reward youngsters for saving, it also helps them understand how digital money works by being able to view their account and track their savings online.

2. Give children safe opportunities to learn about budgeting and spending

Prepaid money cards offered by the likes of ZAAP and Spriggy can also help children learn about managing their money digitally.

Instead of handing cash to your child, you load money onto the secure card for kids to spend at the school canteen, online or in-store when you’re out shopping. It can help children develop budgeting skills by allocating money to different purchases.

The beauty of these cards is that a child’s spending money is not linked to their bank account, so it can help to quarantine their regular account for personal savings.

3. Nurture your pint-sized investor

When it comes to investing, a number of alternatives are available to help your child learn the basics.

Microinvesting can allow pint-sized capital to be invested, usually across a basket of exchange traded funds provided by the platform. The downside is that the fees can be high as a proportion of low balances.

Bear in mind too that minors can be slugged with punitive tax rates on income earned from investments held in their own name. This is to deter parents from sheltering income in their child’s name in order to reduce their own marginal tax rate.

One solution can be for mum or dad to invest as trustee for the child – and this doesn’t mean you have to set up a formal trust. Many investment platforms including online brokers and InvestSMART, allow one or both parents to set up an investment account as trustee for a youngster. The benefit here is that no personal ID may be needed for the child until they turn 18, at which point they may wish to have the investment transferred into their own name.

What matters is that you encourage the child to take an interest in the investing process. Sure, the average toddler is going to be far more interested in Sesame Street than the stock market. But for teens, an early start can nurture a lifelong interest in investing.

If you think about it, investing is not just about building long term wealth, it’s also about earning passive income, and in my experience plenty of teenagers like nothing more than the idea of earning money for doing nothing!

4. Have honest, relaxed conversations

Raising a family is not cheap, and for some households there’s not much cash to spare right now, let alone find money to go towards kids’ investments.  That’s okay. One of the best financial lessons we can teach our children is that money is not a taboo topic.

Having relaxed, honest conversations about money is a good thing in any household. Keep the talk age appropriate, and if you can’t afford something don’t be afraid to say so. It can teach your children a valuable lesson about living within their means.

Importantly, present a united front. Money has tremendous power to drive a wedge between couples. But if you can show your kids that mum and dad are on the same page when it comes to household finances, they can learn powerful lessons that can be applied to their future relationships – and their long term financial wellbeing.

Feeling the need to brush up on your investment knowledge before teaching your kids? Or maybe you want to give your adult children a solid start in their financial journey? InvestSMART's Bootcamp is the perfect short course for anyone looking to make informed investment decisions, no matter where you're starting from. Guided by our experienced instructor Tom Wilson, the course also includes complimentary access to Eureka Report and Intelligent Investor. Priced at just $49.50, it's a fantastic investment in your financial future! Click here to learn more and enrol today.