Teaching your kids to fiscally responsible is a task that starts at a young age. Teaching them to be smart with their money is an important life skill to pass on.
Many parents worry about raising children with the essential life skills they’ll need to be responsible adults. A solid understanding of managing their money is an important part of this. Imparting money sense in your children will enable them to understand how banking impacts their money, how money flow comes in and goes out, and how to complete essential tasks such as paying bills. But knowing where to begin a money education can be overwhelming for many parents.
Make the concept of money tangible
According to the government’s Money Smart Website, there are a few ways to teach children about money. A good place to start is helping children understand the worth and concept of money by letting them handle physical currency. In our contemporary society it can be easy for children to see money as unlimited given the use of credit cards, tap-and-go pay and online payments and shopping. Being able to see cash notes and coins and handle physical currency in exchange for goods can help children understand the worth attributed to money.
Use daily life to demonstrate the value of money and money flow to your child. When taking out cash explain where the money has come from, and how you’ve had to work and save to own that money. Explain that by taking that money out of the bank your account now has less money in it.
Teach your children about value for money while doing your regular shopping. Show them how similar items can have different prices and explain how to compare prices and determine which product is the best value. When they’re old enough, have your child help you calculate the price differences on items and apply discounts.
Involve children in small budgeting decisions
Try to involve your children in budgeting, saving and spending activities from an early age. A good way to do this is to get them involved in planning an activity that they might be excited about. Involve them in the planning and budgeting for a day out and help them work through the costs of travel, food, tickets and other associated costs. Or have them plan a family dinner where they shop and then cook a meal according to a set budget.
You can also involve children in the family budget. Explain to them how much money you have to spend each week and how you choose to allocate that money across necessary household costs. If your child earns money of their own help them to create their own budget to spend their earnings.
Using pocket money to teach responsible spending
If you can, giving your children pocket money can help teach them the value of money. Reward your children for various age-appropriate tasks and chores around the home, but make sure to also withhold their pocket money if they fail to complete their jobs. This will help remind children that they only receive pay for work they complete.
Learning to save is an important part of developing money sense. For younger kids, a piggy bank or a money box is a useful tool to teach saving, allowing them to see the money they’re saving. As they get older opening a children’s bank account is a good way to introduce them to the concepts of banking, saving and interest.
Have conversations with your children about how they want to spend their money. Help them identify things they want from things they need and help them set goals for larger items they want. As children get older and are able to earn money from first jobs, it can be tempting for them to spend all their money. Help them use systems to track what money is coming in and going out, remind them of saving their money for larger goals, and set some boundaries over how much of their income they are allowed to spend. You can also encourage them to donate a portion of their money to a charity -this can be a good tool to show them the good that money can do.
The Barefoot Investor approach
Author of the popular money management book The Barefoot Investor, Scott Pape, employs a simple method for children, which involves separating their money into three jars. For this system children are given a spend jar, a save jar and a give jar, and for completing chores the child earns coins evenly for each of their jars.
Encourage them to spend the coins in their spend jar wisely and talk to them about their decision making processes. The coins in the save jar are to be saved for a longer period. Talk to your child about what their big financial goals are for this money. The final third of their earnings, the give jar, the children get to donate to those who are less fortunate than they are. This encourages conversations around how privileged they are to have access to money, and the good it can do other people in the world*.
Using banking programs as a teaching tool
Many children’s money management plans work by offering children an incentive to save in order to instil good money saving habits later on, often by encouraging them to save for a large item over a period of time. Using children’s bank accounts can still work with most money management plans, and can also teach children about the added advantages of banking and interest.
Fortunately some banks are making this easier for parents by providing bank sponsored savings programs. Many Australian’s will still remember their Commonwealth Bank Dollarmites savings accounts, likely their first introduction into the world of banking and savings. These days options for children’s bank accounts are a lot more varied, with most major banking institutions offering bank accounts for children with differing features.
Some bank’s have utilised a game-based interface to engage with children, and while this can be a good tool for getting younger children interested in banking it can also be a teaching tool to talk to children about looking past promotional extras and comparing the offerings from each bank. In a recent comparison of children’s bank accounts the average interest rate being offered on children’s accounts was 1.66%. The highest interest rate being offered, by comparison, was 2.76%.
This competitive interest rate was being offered on a Scoots Super Saver account, BCU’s children’s saving account offering. Opening a Scoots Super Saver also offers children access to Scoots Zone, and online money management club where children can play interactive games to learn about saving and managing money. The platform allows them to ask money questions, receive tips and advice, make savings plans and access special member deals and discounts at partner companies.
Our big banks pay young savers an ave rate of just 1.66%. That’s 1.1 points below the best account, which is 2.76% in bcu’s Scoots Super Saver— Nicole Pedersen-McKinnon (@NicolePedMcK) March 2, 2020
But Big4 mortgage rates are highest, WHY they try and convert kids w/ cartoons into customers for lifehttps://t.co/y7hfOZLrjg @mozo_au pic.twitter.com/Gx86pOH6Hy
The next highest interest rates being offered on children’s saver bank accounts came from Sydney Mutual Bank (2.75%), Police Bank (2.3%) and Coastline Credit Union (2.1%). The big four banks all offer children’s saver bank accounts with CommBank offering the highest interest rate of 1.85%, followed by Westpac (1.7%), ANZ (1.6%) and then NAB (1.5%). Having conversations with your children about the importance of an interest rate is an opportunity to explain to them that the rate relates to how much extra they have the potential to earn or lose. It’s also worth considering the conditions attached to various accounts, as some may impose minimum deposit amounts each month and zero withdrawals in order for children to access these interest rates.
Another popular option in children’s bank accounts is the Clancy Koala savings account with Hume Bank. The savings account rewards children with bonus interest for depositing a minimum of $10 each month and not making any withdrawals during the same period. Bendigo Bank also offers children’s Piggy Saver accounts with competitive interest rates. By opening a Piggy Saver children also receive a free money box to help them keep track of their money before they put it in their account.
Many parents might find it easier to have their child participate in a program run through their banking institution, and with many banks offering a children’s program it can be a good idea to check in with your bank and see what they can offer. You can also involve your child in the process of comparing bank accounts and considering the incentives offered by each.
You might also like: How to teach your kids about the value of money
Words by Danielle Austin
Are you in search of the right home loan for your family home? Contact eChoice to help you work out your options. With access to 100s of mortgage products from over 25 lenders, eChoice has the resources to get YOU the right home loan deal.