Teaching our children about money, how to spend it, budget, save and invest is essential to giving them the right skills and healthy habits so they can meet the financial challenges of adulthood.
We need to start these lessons about savings and investment from an early age, because it has been proven that what they learn as kids will follow them into later life, and we all want them to have healthy financial habits for life. But how do we do it? What do we need to do to help our children have a life filled with sensible, supportive and successful financial management?
Introducing preschoolers to money
It’s never too early or too late to start working with your kids on forming healthy habits.The following are a range of techniques you can use to teach preschoolers and the concept of money:
1. Replace the piggy bank with a clear jar for savings
Piggy banks look great, but they do not give kids a visual representation of savings growth. When using a clear jar instead of a piggy bank, it makes savings visual which is their key learning sense.
2. Set a good example
Research by Cambridge University found that children form their relationship and habits with money by the age of 7; like with many other behaviours and traits, they learn directly from observing their parents. It is important when they are watching not to tap the plastic casually without reviewing the bill, and conversely, do not argue about spending, especially with your spouse as there is a high chance they will carry this behaviour into adulthood.
3. Demonstrate the value of money
When a child see’s something they desire, tell them they can have it, but will have to sacrifice something else to get it. This demonstrates value and is much easier than giving a lecture.
Lessons for pre-teens
By this stage they have a basic grasp of money and its value, now time to instil some good habits.
1. Set goals
Help your kids create goals to satisfy their desires, and then work with them to achieve these goals.
2. Pre-purchase research
This has become a lot easier in the online age and is great for all parties involved. When your child asks you for something, ask them to compile the options available, and then find the best price on the option they want. You can also reward them for finding the best price available.
3. Identify peripheral costs
To a child going to the movies may just look like it costs ~$18.To teach them the full value it is important to make them identify all the peripheral costs involved, eg. parking, popcorn, drinks, parents tickets etc. Once they know the full cost of things, they will analyse activities in more depth.
4. Shopping lists
Always create a shopping list before going to the store and ask your kids to help you identify necessary items for the home- and then when you are at the shops: stick to it!! This may be harder for you than the kids, but it is worthwhile!
Now they have well established habits, they can be taught about investing and making their savings grow!
1. How do shares work
This is more than just a money lesson, this is a lesson about how business and how the world works. As an exercise, give them a phantom trading account where they can pick stocks without money, and see what grows and what does not. There are some great resources for this at Investopedia and from the government https://www.moneysmart.gov.au/
2. Compounding interest
To quote the late great Albert Einstein, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. Or summed up more simply by Paul Keating, “Compound interest is earnings on earnings on earnings”. This is a really great concept to introduce children to because it creates a tangible reason to save, it can be taught through basic maths equations and visual representations. For example, the chart below shows the growth in the Magellan Global Fund that iTrust includes as its primary investment, and how an increased return each year really adds up over time:
In finishing, just remember what you do is more important than what you say, keep money tension talks away from the kids, and don’t forget to stress the importance of giving.
About the Author: Michael Ashton operates iTrust Invest https://www.itrustinvest.com, which enables family and friends to send investment gift cards, and makes it simple and cheap for parents to establish investment trust accounts.