As the mother of a 2-year-old, I haven’t yet had a very in-depth conversation with our little person about money. She gets the spare change from our wallets, the odd $50 note on her birthday and sometimes she straight up steals money out of my bag. She puts all of this in her money box, which we have been depositing in the bank every few months. For her, money is a fun game and she puts everything she has into savings. As she gets older, our discussions will of course evolve and become more complex – I’ll consider my job done if I can help get her become financially savvy and live comfortably.
Looking to the future, the median property prices in Melbourne is predicted to be $6M by 2040, this means our daughter is going to need a deposit of between $600k and $1.2M to get into the market.
So, I’ve started researching early in the game to allow us to have quality conversations and help set her up for financial success later in life. And while I might not be in a position to lend her $1.2M when she goes to buy, at least I can help her understand the basics and get into a good savings pattern from the outset.
When should you start talking money with your kids?
The ASIC Money Smart website gives some great advice, suggesting you chat with your kids when you are using money yourself. This might be at the ATM, paying for your groceries or bills, when you are doing your budget or when you introduce pocket money.
You can begin talking money at any age, the sooner the better as far as I am concerned, but ensure your language is age appropriate and try to keep calm about it. I’m sure there are times in life when you’re going to experience stress, but don’t let it be with your kids about money.
Where does money come from?
At a young age, children don’t really understand where money comes from, but as they get older you can open the discussion up around the concept of exchanging your time (i.e. going to work) for money. Money isn’t free and must be earned through working for someone else or maybe running your own business.
Although this topic also gives you the opportunity to talk about savings, investments and property and the ways you can go about getting your money working for you once you’ve earned it – compound interest baby!
Talking about value and mindful spending
I’m a big fan of mindful and intentional spending. I don’t believe you should just tap your card without any regard for what you’re spending and how much things cost. And I firmly believe we should be teaching our kids the same thing. Money comes in many forms now, and can be spent in a myriad of ways: cash, card, wearable tech, online and on your phone. But at the end of the day, no matter how you spend it, you’ve had to sacrifice your time to earn it – so make sure you’re spending it wisely. By setting this example for your kids, you teach them to value their time and resources too.
The pocket money debate
Growing up my sister and I always got pocket money, but we got it for doing jobs around the house and it was a whopping 20 cents per chore (this bumped up to a peak of $5 per job before I realised I could get a part-time job and earn $8.25 per hour).
There’s a school of thought these days that kids shouldn’t get pocket money for doing chores around the house, that it’s all part of being a member of the family and living in the house.
When you get to the pocket money age, you’ll probably want to decide what jobs are pocket money worthy and what jobs you expect them to do to contribute to the family. Or you might eschew the ‘rules’ and give your kids a set allowance. It’s entirely up to you.
I’ll be handballing off all the crap jobs I hate doing (goodbye dishes) but she’ll still be expected to make her bed and put her washing away gratis.
Spending, saving and contributing
Once pocket money is an established activity, many resources I’ve reviewed recommend giving kids three jars to put money in: one for saving, one for spending and one for contributing to others. You don’t have to teach them to evenly distribute their pocket money into those jars, you might do a 50:25:25 ratio or let them choose for themselves as they get older. The idea is to get them in the habit of budgeting and saving early in life, and to think beyond themselves to help others.
Lead by example
Kids learn from the behaviours of their parents, so if you’re constantly spending, up to your eyeballs in debt and generally setting a poor example, then you can probably guess how it’s going to pan out for your kids. The same goes if you’re always arguing with your partner about money and exhibiting stress whenever a bill comes in – they’re going to pick up on that.
I think the best possible way we can teach our kids is to show them how we go about succeeding financially. Get in the habit of involving them when you have discussions about money and the family budget. Set a budget and stick to it. Save money and show your kids how comfortable and stress-free life can be when you live within your means.
The beauty of compound interest
We’ve been saving for our daughter since she was born – our aim has been to save $100 per month for her and to invest this for her, at rate of around 5.76% return. By the time she turns 20 (18 years from now) and thanks to the beauty of compound interest we should have around $46,549 sitting there for her in a relatively low risk, super low tax investment bond. If we hold the investment bond for a least 10 years then all of our earnings on the bond are tax free (check out the details here, don’t take my word for it).
This beats the pants off of the standard 0.01% interest rate and 2.29% bonus interest she would be earning if we just had the money sitting in a kid’s bank account.
As she gets older, we’ll give her the opportunity to open her own bank account for her pocket money but we’re also excited to keep some money aside unknown to her – so when she comes to us at 18 and wants to go on the trip of a lifetime, start a business or buy her first home then we’ll be able to give her a helping hand.
Whatever way you choose to talk to your kids about money, make sure you’re having regular conversations and keep your door open so they can talk back.
By Chantelle Doulis.
Disclaimer: Chantelle is not a financial planner and none of the above constitutes personal advice. It doesn’t take into consideration your personal circumstances and we recommend speaking to a finance professional before implementing any financial changes in your own life.