Financial literacy should be a family affair, and teaching your children about money can be a great time for parents to reassess their own financial skills. Anyone who’s had kids knows that even young ones are pretty sharp when it comes to spotting a fraud. When you’re giving out financial advice, you’d better make sure you’re on top of your own game – or you’re going to hear about it.
Being a good role model is an excellent place to start educating your kids about money, and will force the whole family to revisit some of the bad habits and misconceptions they’ve accumulated over the years. You know those homework moments where you realised you didn’t know quite as much about geometry as you thought you did? Or the time you were scalding your kid about something, and it suddenly dawned on you that you do it yourself? Maybe it’s high time we gave you 5 tips for improving your family’s financial literacy.
- Culture of financial literacy
A great way to start making the family financially literate is to make money a familiar topic of conversation around the household. There are several ways you can achieve that, and just discussing it more will help. Many of us tend to ‘protect’ kids from money early in life when in reality, we’re probably not doing them any favours. While some money matters are too hardcore to burden children with, the main bulk is just everyday life.
- Make it a Family Shop
A 2018 study by the Money Advice Service found that 77% of kids get involved with the family food shop. Whether that’s picking up groceries on the school run or a full-scale excursion to Coles on a Saturday morning, it provides an excellent opportunity to teach.
You can use a shopping trip to demonstrate that spending is about making choices, setting priorities, and trading off some purchases for others. Bill Tsouvalas, CEO of Savvy Finance, says there are lessons to be learned around grocery shopping. “Kids know all about food, but they find it more challenging to associate with abstract notions like electricity bills. For most of us, grocery shopping is primarily about essentials, so it’s a great introduction to the difference between what we might want and what we actually need.”
- Let Kids Make Mistakes with Money
Kids learn best when there’s an experience behind the lesson. They’re great at learning from their mistakes, and you can use that to make financial literacy a bigger part of family life. One way to do that is by giving them some pocket money each week. Let them have some freedom when it comes to how they spend it, too.
You can introduce visual aids when children are still pretty young. Rewards mean a lot to kids, and they don’t have endless patience, so there’s nothing like a clear jar to illustrate how savings can quickly add up. Financial literacy is about responsibility, and part of that is owning your mistakes. Children will soon learn about the benefits of delayed gratification through trial and error and some patient advice from Mum and Dad. Teach them about making what they’ve received last for the week and introduce saving. Is it better to blow everything I’ve got this week on bubble-gum, or what happens if I set some aside?
- Teach Your Children How to Save
When it comes to teaching kids about saving, you can start with the basics and then move on to more complex aspects, like borrowing, banks, and longer-term investments. For now, it should be enough to let them learn that holding back allows them to set their sights higher. What might seem like an impossible purchase and a vast amount of money to a ten-year-old can quickly become achievable if they’ve got a second jar labelled ‘Savings.’
Suddenly, that $40 computer game won’t be out of their reach, and instilling habits when children are young can have positive effects for the rest of their lives.
- Borrowing Doesn’t Have to be Bad (Strategic)
Explaining the longer-term reasoning behind financial concepts is also essential. That MAS study also found that many of the parents surveyed let their own experiences with borrowing get in the way of educating their kids about money. Those with bad debt experiences had a no-borrowing policy, and the children lost out because of that. According to Bill Tsouvalas, there are better ways to deal with the everyday reality of credit.
“Many parents cover their travel or education expenses using a credit card. This can come with inherent risks, however, since after the interest-free period expires, rates can soar. An unsecured personal loan may be a better option, as the interest rate will remain stable throughout the entire loan period and end up costing less overall.”
“Children should learn from an early age that borrowing can be an asset when used correctly. That aspect of money is part of the conversation we should be having with kids around responsibility and self-control.”
Tsouvalas also says that the reasons people borrow are varied. “Mortgages, personal loans, and other forms of finance are all a part of the way we live. For most, it’s impossible to buy their own home without a mortgage. The same can be said for vocational training or even starting a business. How you approach finance and make it work for you is what puts you in control. It’s vital we teach our children that, not leave them ill-equipped for the future when they might want to take on a student loan and go to uni or use a mortgage to buy a house.”
Financial Literacy is an Essential Skill
Teaching kids about money is just as important as everything else we tend to prioritise as parents, but we often forget how money skills can influence success in all areas of our lives. As Bill Tsouvalas puts it, “We worry endlessly about our children developing the skills to build and maintain good relationships in later life, stay healthy, and live in a comfortable home. Yet, we forget how crucial financial literacy can be in influencing outcomes like that. Being financially literate means kids are more likely to be physically and mentally healthy – and it goes a long way to making them happy.