Money-smart kids inevitably grow up to become wiser, more frugal adults. Regardless of your household income and financial comfort, it’s important to teach children about money from a young age. This ensures they are imbued with savvy saving habits and gifted with a firm financial foundation from the outset.
Here are some age-appropriate financial lessons for each stage of a young person’s life:
1. Under-5s: Money is earned
Many children’s stories feature magical “money trees” or people easily stumbling across buried treasure. The reality is that the majority of us aren’t left a fortune by a wealthy uncle. Link some or all of your child’s pocket money with good behaviour – if their room is clean or they help carry clothes to the laundry, they earn coins for their piggy bank. This will help your child understand that money, and reward, is a product of working for it.
2. Under-7s: Wants are not needs
Financial habits are already formed by the age of seven, according to a Cambridge University study, so this is a critical age to ensure good habits are being taught. Adults and children are often guilty of confusing their wants with their needs. Take your child to the supermarket and ask them to put their ‘want’ items and ‘need’ items into different sections of the trolley. By asking them to choose between treats, they will also begin to understand the dangers of impulsive buying – they can have the chocolate biscuits or the lollies, not both.“Money-smart kids inevitably grow up to become wiser, more frugal adults”
3. Under-9s: Small savings add up
Your child has been going to school for a while now. While compound interest may not have appeared on the maths curriculum, basic arithmetic and multiplication have. Ask your child to pick a toy they want, and help them work out how many weeks it will take to buy it if they save so many dollars of their pocket money each week. Then match their savings.
4. Under-13s: Budgets have limits
By now your child probably has probably moved to earn a higher level of pocket money, as well as collecting savings from birthdays or holidays. Encourage them to pay part of their own way the next time you go for a day out, such as an Easter show. Set a fixed budget for rides and treats, and ensure they stick to it. It’s time to stitch up your bottomless pockets.
By pooling their savings, your child is also granted the opportunity to learn about compound interest – the faster they save, the more their money can grow. Draw up a compound interest calculator and create estimates on how much interest your child will accrue each year from banking a certain figure annually. This should help them appreciate the merit of sacrificing in the short term for longer-term gains.
5. Under-15s: The joy of giving
Having money is also about being generous to other people. If you’ve been buying Father’s Day or birthday cards for family members on their behalf, get your teenager to take over this responsibility. If they’re strapped for cash, encourage them to make a gift. They might like to design a card or bake a cake.
6. Under-17s: Work increases wealth
Education is still the most important thing in your older teenager’s life, but a part-time job can be valuable too. Not just to save up more money for a schoolies blowout, but also to learn valuable skills and even increase their employment opportunities. Gardening, cleaning, cooking for grandparents and other family members are an option if there aren’t many part-time positions available in your area.
7. Over-18s: Life costs money
It may seem too late to teach high-school leavers, but unless you want to be stuck with a ‘kidult’ until retirement, help them understand that once their education is over and they’re legal adults, it’s time to pay their own way. You may wish to help them financially through their university years, but after that point they need to pay you at least a nominal rent each week, whether from their first job or from benefits. This will help them understand living within their means and calculating annual expenses. If you prefer, you can secretly put their weekly rent into a high interest savings account for them.
Most importantly, ensure that you display good money habits yourself. Have a think about your own impulse buying, budget blowouts and credit card debt. Lead by example, and be open with them about how you budget, save and spend.
What’s your top tip for teaching kids about money?