Remember coming home from school with your very own moneybox? Or the excitement of bringing a precious $1 coin to school on class banking day?
Starting a savings plan helps children learn solid financial habits from an early age. It was once part of primary school education, but changes to the curriculum have meant responsibility for financial education returned to the family and, as a nation, Australians are lagging.
According to Westpac bank’s Financial Future Report, more than a quarter of kids under five don’t even have a savings account, despite 86 per cent of grandparents and parents believing they should.
This research is in line with an earlier survey by the Commonwealth Bank, which showed that while most parents encourage their children to save for a rainy day, only 30 per cent of kids put money away.
Nobody’s better placed than parents and grandparents to take on the role of money mentor.
Yours spoke to financial planner Susan Bryant of Seeds of Advice to help you decode the financial world of kids and money.
Talking openly about money, and particularly in front of children, is still considered taboo in many families. However, as Susan points out, the alternative is far from helpful – ignorance isn’t bliss.
“Kids today are having their own conversations about money,” she says.
Between the rampant materialism shown on reality TV and lifestyle comparisons social media invites, kids can be especially vulnerable to thinking money is for spending and showing off.
“We’ve all become so materialistic that simply looking like you have money equals success now,” Susan says.
Grandparents and parents can counter such attitudes by discussing debt, the importance of building savings to fall back on in lean times, and what money can and can’t do for you. Just be sure younger kids don’t come away from your conversations frightened about personal finance, Susan advises.
“Let them know that there’s nothing wrong with money itself – it’s poor management that causes problems, and with the right skills they can grow up having the power to control the money they have,” she says.
Improve kids’ understanding by taking them on a special trip to open their first bank account, and ask the bank to post monthly statements so you can go over their progress together.
In 2013, pocket money in Australia was a $1.4 billion-a-year industry, according to the Commonwealth Bank, which surveyed 1023 parents of children aged four to 15 and found almost 80 per cent of parents regularly pay their children some sort of an allowance. It’s a smart strategy, as long as kids understand why they’re getting pocket money and what they’ll be allowed to spend it on.
Rather than the usual approach of paying children to complete specific chores, Susan suggests kids earn the right to be paid pocket money by being responsible family members.
“Follow the traditional guide of paying kids $1 for each birthday they’ve had – $5 for five-year-olds, $8 for eight-year-olds, and so on – but be clear that being part of a family means having a responsibility to that family,” she says.
Responsibilities can include everyday activities, such as doing homework without being asked, helping to care for pets and keeping their room tidy. This avoids kids becoming used to “bribes” for helping around the house.
As for what they’re allowed to spend their pocket money on, ask them what they think the difference is between a family expense (say, a basic pencil case) and a pocket-money expense (a fancy novelty pencil case), then create your own rules together. Letting kids have pocket money reduces their pester-power and, having to hand over their own money will teach the difference between “needs” and “wants”.
With the popularity of in-app purchases and online shopping, kids can find it increasingly difficult to separate fiscal reality from fantasy.
“Along with tap-to-pay credit cards and ‘magic’ holes in walls dispensing cash, it’s no wonder that money seems unreal to children,” Susan says.
When you’re out and about with the kids, withdraw cash at the beginning of the day and use it to pay for everything, using each transaction as an opportunity to budget and count your change. Take a notebook and use a phone’s calculator to keep track.
Kids learn a lot faster if they’re enjoying themselves, which is why Susan recommends making games out of savings opportunities. Try setting up three jars in their bedroom (or at your place) to count out and store their notes and coins. The first jar should be for spending at their discretion, such as buying lunch at the canteen; the second should be for saving towards something achievable, such as a trip to a theme park; and the third should be long-term savings that are not to be touched.
“The idea is to form a habit that a portion of your money is available to spend, another is put aside for short-term goals, and a final portion goes into a ‘rainy-day account’ with no specific goal attached to it,” Susan says.
Another tip is to make things visual and either draw or cut out pictures of what they’re saving up to buy.
Susan says, “As with paper bank statements, visualisation is important for children, so teach them to colour in parts of their drawing or collage as they progress with their savings to encourage them to reach their goal quicker.”