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10 ways to teach kids about money

Encourage healthy financial habits for the future with these tips on teaching kids about money.

Many young adults struggle with managing their money when they head to university or start working full time and are left to fend for themselves.

The biggest reason for this is that they weren’t educated on how money works when they were younger. This leads to spirals of debt, impulse buying, living week to week, and always feeling like they can never get ahead.

Right from a young age, kids tend to learn from their parents’ behaviours and attitudes and this includes money. Teaching kids about money in the various stages of childhood and teenage years will help promote effective habits that can set them up for a successful financial future.

Provide education on the consequences of debt

Debt can cause a mountain of problems including stress, relationship issues, inability to access credit in the future and even court proceedings. Teaching kids about money and the effect that debt can have on their lives early on will help avoid them spiralling into a hole of debt in their adult life.

When they reach the age of being able to access credit, which is 18, they’ll no doubt be tempted with offers from their bank for credit cards or personal loans. Make sure they understand what responsibilities these products come with so they are more confident to say no than be tempted with ‘free’ money.

Suggest that having a credit card is a privilege not a right, and should only be considered once they are in a stable job and are able to budget and manage their repayments – which may not be until they are in their 20s.

Let them make mistakes, and learn from them

Once they start earning their own pocket money, allow them to do what they want with it, whether that’s spending or saving, or a combination of both.

If your child spends all their pocket money on an impulse buy and then doesn’t have any leftover for something important that they need, don’t allow them to have the expectation that you will give them extra money.

Learning that they can’t rely on the bank of mum or dad when they run out of money will help them realise that they need to think more carefully about how they use their own money.

Give pocket money in exchange for chores, rather than an allowance

Providing an allowance may seem like a good way for your children to have their own money to spend, but giving it without anything in return doesn’t do anything to teach them how things work in the real world.

Instead, tell your kids that you will give them pocket money each week, but they have to complete a set of chores in order to get that money.

Chores can include:

  • washing the dishes or emptying the dishwasher each day
  • feeding the pets and cleaning litter trays
  • vacuuming and dusting
  • folding washing
  • mowing lawns
  • making school lunches
  • making their bed each day
  • cleaning their room
  • putting dirty clothes in the laundry.

The chores you assign will depend on the age of your children – younger ones may not be capable of managing everything that the older ones do, but it’s still worth assigning them something to be responsible for.

How much pocket money you give your child is totally up to you, but make sure it’s fair based on the number of chores they need to do. For example, $10 would be a fair amount for doing the dishes everyday, making their bed and taking care of the pets, but you’ll want to double that if you are also including mowing the lawn and vacuuming.

So everyone can keep track of chores, draw up a chart to put on the fridge or on your child’s bedroom door, so they can tick off when they’ve completed each one.

To teach them that they actually have to complete all chores before you’ll pay up, you can let them know that they won’t receive anything unless all chores are completed – or if you’re feeling kind, the pocket money will be reduced if they miss some.

Teach them the value of money and to think before they buy

Children don’t often understand how much things actually cost and may believe the old cliche that money grows on trees if you tend to buy them whatever they ask for. If this becomes a pattern, and then you suddenly tell them that they aren’t able to have something, they may take it as a form of punishment.

You can teach them the value of money by giving them a budget to spend when you head out shopping. If they have their own pocket money then you can allow them to spend a portion of this, or give them a small amount of $5-$10. When they only have a certain amount to spend, they will take more time looking at different items and seeing how much they cost.

Once your child is earning their own pocket money, they’ll want to spend it on new toys, games, clothes or even school supplies. Rather than letting them buy the first thing they see, encourage them to think about whether they really need the item or if they are just impulse buying.

You can set a rule that anything over $20 can not be bought straight away, and that they need to take 24 hours to consider to ensure they are making the right decision with their money.

Show them how to compare prices

You can show them how to compare prices and explain that items can be priced differently depending on the retailer, brand and if there is a sale or discount.

  • If they have seen a toy that they want at Toyworld, they can also check if the same toy is sold at The Warehouse or Kmart. Is one retailer cheaper than the others? Or is there a similar toy from a different brand that costs less?
  • Take them with you when you do the food shopping and show them how to look at specials. Supermarket receipts usually show the amount of money you saved by choosing discounted items, and this money can be used to purchase more items or saved to use later.
  • Explain that some items are always more expensive in some places than others. For example, a bottle of cola costs more at a service station or dairy than it does at the supermarket.
  • Pay attention to advertising and to watch out for sales where you can save on larger purchases. If your teenager wants a new phone or computer and it isn’t urgent, you can teach them to wait for regular big sale periods such as Black Friday, Boxing Day and other public holiday sales.
  • If they are old enough to use the Internet, explain how they can check the price of items across different retailers without needing to visit the physical stores.

Help them to find ways to make their own money

Once kids understand that if they have money they will be able to buy things that they want, you can show them how to make their own.

While there is no minimum age for employment in New Zealand, that doesn’t mean that you can expect your 10 year old to get a part time job. We do have some restrictions on the type of work teenagers can do, for example, anyone under the age of 15 can not work where products are sold or are being prepared, and those under 16 can only work between the hours of 6am and 10pm.

It’s common for teenagers 16 years and over to find part time work at a supermarket, fast food outlet or gas station, and there are plenty of other opportunities to be found such as babysitting or tutoring.

You can help them look for job ads, write up a CV and take them to interviews. Just make sure that the amount of hours they work doesn’t interfere with their schooling.

They may be able to pick up more hours during holidays, which effectively kills two birds with one stone – they are earning money and you don’t need to find ways to entertain them.

For younger children, you need to get a little more creative. Depending on what your child is interested in and what resources you have available, there are a number of ways they can make a little extra money (see our tip on chores).

By encouraging them to earn their own money and effectively start their own ‘business’, you can teach other key skills such as sales, marketing, advertising and cash handling. You can also teach technical skills like setting up a website or social media page.

Explain what a budget is and how to create one

Once your teenager has started a part-time job, show them how to make a budget. Even if their income is small, they can get in the habit of allocating portions of their pay cheque to spending, saving and other miscellaneous costs.

At this stage you may want to ask them to contribute to the household expenses – even if it’s a small amount, like $5 a week. Having an expense that they are responsible for will help them keep better track of their money and ensure they don’t go out and spend it all on pay day.

Discuss how bills and other important expenses work

Many kids have no idea about the financial responsibilities that their parents have, so it’s worthwhile explaining what types of bills you need to pay to keep the household running.

  • Gather your broadband, phone, power and water bills and show them how much each one costs and when you need to pay it.
  • Tell them about how you pay for the home you live in, whether you need to make rent or mortgage payments.
  • Go through your own budget and how you need to make sure there is enough money to pay your bills on time, and what the consequences will be if you don’t.
  • If you have a credit card, personal loan or car loan, you can also inform your children of the reason and that you need to make regular repayments to pay these off.

By teaching kids about money and how you have important bills and expenses to cover from your income, they can begin to realise that it’s not possible to impulse buy every new thing that they want.

Start a savings account and set a savings goal

Banks offer free accounts for kids, so you can open up an account that they can use to save some of their pocket money and any gifts of money for birthdays or Christmas.

But first, explain how a savings account works and how they can earn interest on their balance. Even though interest rates on savings are not so great at the moment, they can perceive any type of ‘free money’ from the bank as a reward for their savings effort.

When you start their savings account, talk about savings goals and ask them if there is anything that they would like to save for in particular. This could be something as small as a new bike, or a larger purchase such as a car when they reach the legal driving age.

Make sure they understand that they don’t have to have a savings goal in mind right now, they can simply put money aside for a rainy day or to help them become more financially secure in their future.

You can also introduce the topic of investing, and if they are interested, sign them up to a children’s account with one of the share trading platforms.

Explain needs are more important than wants

It’s common for older kids and teenagers to want every shiny new toy or gadget that they see, or perhaps their friends have a newer and better version of something they own.

A perfect example of this is cars and mobile phones – both are constantly being improved with new and improved models being released all the time.

However, just because your teenager’s friend has got the latest iPhone, doesn’t mean that they need it as well just to fit in. If they have the items that they need and they are in good working condition, they don’t need to compare what they have to others.

Teaching them how to be content with what they have and that their phone works fine will help them understand that they should make purchases based on needs rather than wants.

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