Many parents will say that teaching their child to drive is one of the most stressful experiences of their life. In fact, no one could judge you for having an expert take the wheel in this area of getting them ready for the world. Unfortunately, when it comes to preventing them from crashing financially, there are few options but to grit your teeth and teach them yourself.
So, what are some ways you can encourage your young ones to become savvy in their money habits (and hopefully stop asking for a loan every time a band comes to town)?
A 2013 University of Cambridge report revealed that childrens’ core money habits are formed by age 7, meaning it’s never too early to start instilling positive money values in your children.
Allowances are a personal choice for every family, but it may be worth finding a way for ‘pocket money’ to be earned rather than simply given. Studies show that those who earned money through completing tasks around the house valued their income more. However, it’s important to be clear on what is considered paid work and which chores are simply contributing to family life.
Preschool-aged children might also be encouraged to set up separate ‘saving’, ‘spending’ and ‘sharing’ money boxes.
This helps set short and long term goals for money while building a capacity for patience, and identifying a need and a want. It’s best not to set a saving goal that is too large or far in the future to make it achievable. If they do want to go for a bigger challenge, you might look at a dollar-for-dollar matching policy.
And if the cash outgrows the money jars, just about every bank offers child-friendly accounts, many with reduced fees on transactions to a capped limit.
The teenage years
According to ASIC, 52% of students earn money from working outside school hours but only 57% regularly save money.
The Rich Kids of Instagram are poor role models for those looking to build real wealth. When the time comes for your teenager to get their first job, or perhaps needs to start balancing university life out of home, there are some clever tools you can employ to ensure they stay on track financially.
Technology is your friend
They’re always on their phone, right? Put that screen time to good use: there are plenty of apps that make budgeting and investing easier for the smartphone generation.
ASIC’s Money Smart TrackmyGOALS can help a financial novice get a handle on income and expenses. That includes contributions to a household budget, saving for special events and setting up an emergency fund.
Other popular paid and free budgeting app options you might like to explore include YNAB, Pocketbook and Goodbudget.
A university budget based around ramen noodles means their scope to invest may not be huge, but it doesn’t mean students can’t start. You could plant the seed about investing with an app such as Acorns, that uses ‘round-ups’ from everyday purchases to put onto a diversified fund. Check the terms, conditions and fees; there is annual fee of $15 on balances under $5,000 and a percentage on amounts over that.
Of course no investment is without risk, but they’re at an age when an aggressive portfolio, especially one that’s based on spare change, may be the ideal way to get investing on their radar.
Courses for financial literacy
If school is not ensuring the fundamentals are getting through to your child there are plenty of online short courses to help them gain a clearer understanding about budgeting and finance. You might consider one of the paid subscription-based courses from Lynda, Udemy or Coursera.
The most important thing you can do is spend time sharing your knowledge with your child and answer their money questions. While you may be investing to leave a legacy for them, ensuring they know how to look after this is certainly worth an investment of your time.