Money management can be a difficult topic for many people to discuss openly, especially if you were raised in a household that saw speaking about finances as taboo. Now more than ever, it is essential we speak to our children about how money is earned, saved, budgeted, and spent if we want to raise a generation of financially savvy adults (and maybe give them half a chance of breaking into the housing market and moving out of our place before they’re middle-aged!).
Even if you’re not the best with money, there are lots of ways you can start your children on the path of financial literacy and instil good habits from a very early age. The most important tip is this: Talk to your children about your finances! Talk about your spending, your earning, and how you budget. Without a doubt, opening up the conversation about money is the biggest hurdle to overcome when teaching our kids.
Chat to your kids about money whenever it comes up naturally in conversation, and don’t be disheartened if they don’t understand immediately. At 4 years old, my eldest has just started to show an understanding of how we earn and budget money. My 3-year-old, not so much – but the groundwork is building simply because he is exposed to my finance chatter in our everyday lives! You’re doing important work just by speaking about financial literacy!
In a predominantly cashless society, our kids see us tap our magic card at the register and walk away with our latest purchase. Explain that the card is attached to a bank account and the money you earn at work is deposited there. When you tap the card, some money is taken out of your bank account to pay for it. If you spend all the money in your bank account, you aren’t able to buy anything else so it is important to budget your money.
Kids don’t see us depositing a physical paycheque or even paying with cash all that often, so helping them to understand the origin of your money and that you have only so much to spend will set them on the right path.
As adults, we inherently understand that one good-quality item is worth the outlay compared to a cheaper, poorly made item which will need replacing quickly. Speak to your child about this concept with examples, such as shopping for school shoes or a backpack. It’s not always about finding the cheapest possible option.
You can also compare prices at the supermarket and teach children how to read pricing labels (e.g. fruit is priced per kilogram, bread is per loaf, etc.). Unit pricing can also be discussed to show the difference in price between two similar items of different sizes.
I don’t know about you, but my 4-year-old loves nothing more than swiping my loyalty card and tapping my debit card when we’re at the supermarket. She learns how a transaction works, and that we need to pay for our shopping and collect a receipt before we leave the store.
We also visit a playgroup once a fortnight and I entrust my 4 and 2-year-old with the $2 in coins that they each pay on entry. I want them to learn that physical money has value and needs to be taken care of (I’ve had to pull the car apart once or twice when my son lost his coins between the seats). They also take pride in putting the coins into the moneybox at the playgroup, and we count the coins to make sure we have exactly $2 for each of them.
Both cash and cashless transactions are important, so giving kids the opportunity to do both is a fabulous way to introduce them to the different ways we can pay for goods and services.
Kids won’t hesitate to tell us about the things they want. Especially as they head towards school age and start talking to friends about a toy, or make the link between the TV show they love and the ridiculously priced licensed toy available at the store.
Talking about Wants vs. Needs is an introduction to budgeting. When we earn money, we must pay for our needs (our house, our food, our electricity, and water) before we pay for our wants. If we want something expensive (see above licensed toy), we can save our extra money until we have enough.
This is such an important concept to learn. We instil the value of saving up for a big purchase to buy it outright, rather than borrowing money and paying it back, and set kids up to prioritise the security of shelter, food, and utilities. These are the building blocks of budgeting to make sure we live within our means!
Finally, a tip that doesn’t involve talking about money!
Playing cafes and shops is a great way to imitate cash and cashless transactions. Giving change, counting coins, and understanding the need to pay for things are all important parts of playing these games. It doesn’t need to be serious or realistic: $400 for a coffee and a muffin at this cafe? Steep, but OK!
Answer money questions as they come up, but this tip is almost entirely about the experience of paying for something in the spirit of fun!
It may seem silly to speak to your kindergartener about superannuation or taxes, but mentioning these topics in simple terms introduces important financial literacy concepts. As children grow up, you will be able to go into more detail as they become interested in, what I consider to be, some very cool financial topics!
Superannuation – Some of the money I earn is put away into a locked bank account for when I want to stop working. I can’t use the money in this special bank account until I am a lot older.
Taxes – I give some of the money I earn to the government to pay for hospitals, roads, and the police and ambulances you see. Everybody contributes to these services by paying taxes. It’s a way to make sure we all have access to important services.
Compound interest – When I put my money into my savings account, the bank pays me a small amount to keep it there. As I put more money into my savings, the bank pays me more and more so my money grows faster.
Investing – I can buy a small part of a company by investing some of my money. If that company earns money during the year, they will pay me a little bit of the profit because I am an owner.
These are strategies I personally love to use with my own kids. I strongly believe talking about important topics in small bursts and with simple terminology, is the best way to educate kids. Remember, children will watch and learn from you. If you are always stressed about money or refuse to speak about it, they will follow your lead. If you show your children that you are willing to learn about personal finance and managing your money, their naturally curious minds will do the same. It is never too early (or too late) to learn the vital life skill that is financial literacy.
Check out the MoneySmart website for oodles of great financial information, including more suggestions for teaching kids about money (https://moneysmart.gov.au/teaching-kids-about-money) and some handy savings and compound interest calculators for the older kids.
Emily Keable (@emilyonmoney) is a personal finance addict and millennial working mum from sunny Rockhampton, Queensland. Passionate about helping women understand and take control of their finances, she shares tips, information, and her own money journey on the Emily on Money Instagram page and blog.