Teaching kids about money
The truth is, adulthood is rife with financial challenges. The more prepared your children are, the better. From budgeting and saving, to understanding the true value of money, read our guide on teaching your kids financial literacy.
As a parent, you play a vital role in helping your child establish positive habits around money â namely earning, budgeting, saving and spending. Often, this is based on your own personal experience with managing money.
Fortunately, you donât have to be a financial genius to teach your child good skills. It can be as simple as involving them in very basic purchasing decisions and budgeting from a young age.
The other important point to make is that, as they grow, their financial awareness and needs will change as they progress through primary school and into high school.
A great starting point (beyond this article) is to check out ASICâs Money Smart guide for Teaching Kids About Money.
Understanding where money comes from
With the emergence of cashless transactions, children donât often see physical cash changing hands in their parentsâ day-to-day transactions.
In turn, they might struggle to understand where money actually comes from â that it needs to be earned.
Itâs important your kids understand that the plastic card in your purse or wallet is not an endless source of money. Hereâs what you can do.
Introduce âpocket moneyâ
Doing this early on is a great idea. Whether itâs a âcashâ reward for doing chores, or some other task â itâs a fantastic way to help your child understand how money is earned and the tangibility of physical cash.
In other words, it will make it easier for them to establish the link between cash and digital money down the track.
Use cash
You can do this for things like groceries or snacks, just so that your child can see the transfer of physical cash to pay for things.
At the checkout, explain to them that having a job and going to work is how you earn money, for example â in the same way that they earn pocket money for doing chores â which allows you to then buy groceries for the family.
The value of money â needs versus wants
For children earning pocket money, understanding what their money can and canât buy is an important one. Here, the lesson lies in your child realising the implications of their spending choices.
Kids learn a lot about money through observation, chiefly your spending behaviours, decisions and conversations.
If they see you making impulsive purchases or not considering the price of a particular product, they may struggle with developing their own good spending habits later in life.
Itâs up to you to be proactive. When youâre out shopping, try saying things like: âI donât think we really need thisâ, or âThe price is a little high, I might see if I can find it cheaper somewhere elseâ.
In other words, find opportunities to teach them to compare one product to another, as well as the difference between the cost of a particular product and the value of the product.
The workings and benefits of a bank account
Kids love piggy banks. And while using one is a great way to kick things off, managing money wisely requires more sophisticated tools in the real world.
The whole experience of going into a bank with your child and opening an account can have a huge impact. You can talk them through depositing and withdrawing money â and the channels they can use to transact their money.
The same goes for taking them into a branch and depositing their pocket money, transferring it via Internet Banking or getting them to check their account balance.
Next time you pay a bill online or via your smartphone, involve your child and show them how the money gets debited from the balance.
This will help them to understand terms such as like debit, credit, balance, transactions, and ATM. Chances are theyâll find the whole process fascinating.
Budgeting and saving
You should also consider putting your child in charge of their own money early on (with guidance of course). This can be a fantastic way to teach them the importance of budgeting and saving. Letâs break it down.
Budgeting
Say the school holidays are coming up and your childâs friends are planning an outing on one of the days.
You could help them estimate the total cost of the excursion and how much spending money theyâll need on the day. Then, start budgeting for it out of their weekly pocket money in the lead-up to the holidays.
Saving
Chat about how a savings account can help your child reach their goals faster â showing them the importance of separating their âsavingsâ from their regular transactions.
They can also name their savings account according to what theyâre saving for, and you can help them set up automatic transfers to their savings account so they can put money away regularly.
While your child may find the process frustrating and slow, itâs important that they understand the value of money. Itâs a good idea to come up with creative ways for your children to earn some extra cash, instead of âtopping upâ their account.
Term deposits
You can also teach them the value of not touching their savings and watching it grow over time with a term deposit. They can choose a term which suits their needs and earn interest by locking away their money for that time.
Keep in mind that you need to be 18 to have a term deposit, so if your child is a minor this isnât an account you can put in their name.
Safety and security
In the digital age, protecting your identity has never been more important. When it comes to banking, itâs critical that you educate your child around the purpose of their PIN and password, and how best to protect them.
In terms of safety and security, there are a number of themes you should sit down and discuss with your child, just to help them get their head around everything. Here are some ideas to get you started:
Keeping your children safe online
Protecting your password
Keeping your mobile devices and apps secure
Protecting your identity online
Identifying spam and phishing messages
Shopping securely online
Protecting your computer from malware
Debit cards versus credit cards
As your child gets older, itâs important they understand the similarities and differences between debit cards and credit cards.
Debit cards
A debit card allows you to access the funds that you have available in your everyday banking transaction account and can be used at ATMs and EFTPOS terminals.
If your debit card is a âschemeâ debit card â such as a Visa Debit card or MasterCard Debit card â they can usually be used for online purchases as well as at ATMs around the world.
Credit cards
A credit card can also be used at ATMs, EFTPOS terminals and online. But as you know, they donât draw on money sitting in your everyday bank account.
For your kids, the most important lesson here is that when youâre using a credit card, youâre borrowing money from the bank. This means you can accumulate too much debt if youâre not careful.
They need to understand that you have to pay the money back, as well as any interest and fees â such as annual fees or cash advance fees.
Source: NAB
Reproduced with permission of National Australia Bank (âNABâ). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/budget-saving/kids-money-education
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
© 2024 National Australia Bank Limited (âNABâ). All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
