To truly harness the power of compound interest, the earlier a person starts investing, the better. If you want your kids to start on the right track, it’s essential to teach them good habits with money. Not only teaching them good practices with finances by talking to them and having them read books about it, but showing them what you do yourself will have great power.
In just about any primary and high school in the world, there is a distinct lack of any mention of finances which is really alarming. So, many kids will turn to their parents and learn from their habits.
10 tips to Teach Kids Good Habits With Money
Teach them to invest and the benefits of starting early and having money work for you. Baby Income Master is 13 months old in a few days and has already amassed just under $3,000. This was built using a combination of automatic fortnightly deposits, Westpac’s Baby Bump account offer, and birthday gifts. Obviously we are a while away from Baby Income Master being old enough to understand what money is just yet, but she will have a very good base to start off with when she does reach that age.Showing kids a basic compound interest chart is relatively simple for them to understand and a lot will get excited about just how easy it is to start hitting big figures.
Learn from the mistakes that you made and help them avoid common pitfalls. Everyone makes mistakes, it’s part of being human. Mistakes make us better if we learn from them. As kids start getting older and into their late teens, it’s definitely important to teach them the right habits of credit cards, or to just not get one at all. I’m a believer that they are a useful tool if used correctly as you can receive benefits such as travel reward points.Also when it comes time for them to purchase their first car, rather than taking out a loan and buying something beyond their means, teach them to save for it and buy something reasonable outright. I bought my first car with money I had earned stacking shelves at Big W (Walmart for those in USA) valued at around $5-6K. It was a used Honda Accord with a lot of mileage but it did the job. It’s pretty much guaranteed that you’ll have a few mishaps in your first car as you’re gaining driving experience so it’s best not to get anything too extravagant. Sticking with small, reliable Japanese cars like the Toyota Corolla, Honda Civic, Honda Accord and others are a great way to go as general maintenance is low, petrol usage is small and insurance is also affordable.
Teach kids the benefits of working well before they reach the typical working age. Small little jobs around the house is the perfect starting point. Things like cleaning their bedroom, mowing the lawn, taking out the trash. If they complete the jobs, you can reward them with a small payment that they can get into the habit of saving. If they have some sort of goal, that will make saving more interesting. rather than just immediately spending each payment on lollies and toys.
While they have their first part-time job and likely have few monthly bills due as they are still living at home, it’s great to put in place an automatic savings plan. With any banking app or website, you can setup automatic deposits and transfers. This is a powerful savings and investing tool to take advantage of. Pay yourself first. While the children aren’t paying off a mortgage, health insurance and a plethora of other bills us adults have the joy of dealing with, it’s crucial to be allocating a nice chunk of the pay away into a high interest savings account. Something like 15% of their paycheck is a good amount to start with. I was saving at a much higher rate during my first job but different people can tolerate different levels of frugality.
Talking to your kids regularly about money will help them get an understanding of good habits to have. Letting them know that the ATM doesn’t spit infinite notes out (sadly) and that being disciplined pays off. Speaking to them about their goals and what they want to achieve so they can start mapping out a plan of attack. Money is a big stressful monkey on many of our backs so having a game-plan put in place will make things easier.
The Beanstalk Activity centre. Commonwealth Bank have put together a great one-stop shop for kids to learn about saving and budgeting. There are many activity sheets for you to download and print off for your kids such as: Savings Tracker, Resume Builder, Learning About Value, My Budget Plan.
Setup a high interest savings account. There are many savings accounts that you can apply for that are designed for children.
Youthsaver account. Make at least one deposit and no withdrawals each calendar month to earn bonus interest of 2.29% p.a. on balances up to $50,000.
Bump Savings account. No monthly service or transaction fees. Variable interest rate of up to 2.30% p.a.
ANZ Progress Saver account. Free monthly account service, up to 1.71% p.a.
When paying the bills, explain the amounts that daily living expenses add up to and how many days of work it takes to cover such costs. This will help them build the relationship between time and money in their head. Living within your means so you can live comfortably and not having to work until you’re 65-70 as you’re still paying off material objects.
While doing the grocery shopping point out that the same items can vary in price drastically depending on brand and other factors such as buying in bulk. This can keep kids occupied while in the shops while they spot cheaper prices for items on the weekly shopping list and will help with their general maths skills.
Monitor mobile phone usage. I didn’t get my first mobile phone until I was about 16 or 17 from memory. The very first Motorola phone which had a colour screen! The size of the screen was only slightly larger than a postage stamp. Children now days are getting them as early as 10. It’s important to make sure they understand the costs associated with owning a mobile phone and to be responsible by not racking up a gigantic bill. Many parents have received phone bills in the mail for their kids because they have managed to spend an exorbitant amount on micro transactions with their favourite games.
Let us know in the comments what tips and tricks you use to get your kids to be smart with money!