Teaching Kids About Money Early: for sensible financial decisions later

EK Wills
Nov 17, 2018
3 min read

By EK Wills

Many people struggle with finances their whole lives. And many feel they don’t know enough about how to manage their money. It’s too hard and too complicated so why bother?

But given how expensive today’s economy is for housing, the idea of owning your own home seems to slip from more people’s grasp at an alarming rate.

I grew up in the excess of the 80’s so always thought at a windfall of success would enable the lifestyle I wanted. But the crash that came after it with the GFC soon set many heads straight on that front.

Now more than ever, financial know-how is a must. But where do you learn it?

If you have a child that happens to be interested in it, commerce is a good subject to start with. You learn about things like supply and demand as well as product development and marketing. If you happen to do general maths in the HSC, then they teach you about taxation.

But what if you miss those opportunities and don't particularly want to become an accountant? There are plenty of self help books like the one I recently read, called “The Barefoot Investor”. Scott Pape gives a step by step approach to organizing bank accounts, advice on superannuation and private insurance as well as getting out of debt if you’ve managed to dig yourself into a hole.

What I liked about it was that he is a proponent of teaching your kids about money. We’ve always advocated pocket money and household chores to contribute to the family. Scott takes it a step further to give them bank accounts with the set up of a savings and a spending account.

The idea is that if you learn from the beginning that you need to save a little, regularly, then it becomes second nature. The way ahead from his perspective is to start early and keep building, leaving nothing to chance. Then you can build on it to develop investment plans so that every dollar you put in should double every seven to ten years…. But I’m getting ahead of myself. I've whittled it down to my basic approach:

Step by step: what to teach kids about money

1. Model good spending and saving habits

Kids copy what they see. They may not do it immediately but if you emulate good habits there is more chance they will pick them up. By taking charge of your own savings/spending, it shows them not to waste their pocket money or their earnings from the local café.

2. Show them how to spend and save

Start with money banks when they are little and move to bank cards when they are older. Have one for spending and one for saving…for each child.

When they get their pocket money or Christmas gifts, encourage them to spend half and save half. That way they get the instant reward plus delayed gratification watching their supply of cash build (or go up on the bank statement). It could go towards a big ticket item such as an electronic device of their own that they helped pay for.

3. Add a long term strategy as they mature

As they get better at doing this, you can introduce the idea of investing. It could start with their first job and encouraging them to add another account for growth items. This could be for long term investment or a trip overseas when they graduate from university. But it sets up the idea that there is a percentage of their wage that goes to saving for short term and another percentage for long term. Try doing a third (33%) each.

4. How to pay the bills

The biggest question of all is how to balance what goes in and what goes out. When you have no bills, it’s not an issue, everything looks like a Gucci bag alternative.

But when there are competing costs, you need to factor them all in.

If you can set up a rule to live by of 60% of your income for expenses, then the other savings accounts become 10% spend, 10% short term save and 20% long term save or invest.