In an ever-changing world, teaching your children about money matters has never been more important. Why? Because if children develop good financial skills from an early age they’ll be ready for the financial challenges of adulthood. They will become ‘money smart’, and why wouldn’t you want that? So, what exactly do you teach them? Let’s find out.
Good Debt Vs. Bad Debt
Whether we like it or not, unless you are extremely wealthy and your children are due to inherit millions, debt is a part of life. It’s not all bad though, and knowing the difference between good debt and bad debt is essential to being ‘money smart’.
- Good Debts
Good debts are for purchases that could possibly increase in value, including resources like a house, car, a business, or training.
- Bad Debts
Bad debts are for those little luxuries in life – those purchases that we don’t really need, such as that extra pair of heels, dining-out, or overseas trips and other things that give us short-term gratification but also long-term debt. When purchasing these items, it is advisable to have the cash before you purchase – You’ll feel better about the purchase that way too.
Passing this knowledge on to your children, and displaying positive practices will help.
Teach kids about credit cards
Pocket Money
Encouraging your children to do household jobs for a few dollars is one of the best methods to begin teaching them about money matters. If you decide to pay for jobs, one of the trickiest things to work out is what jobs you should pay your children for and what jobs are ‘family jobs’ that are expected to be done as a contribution to the family. The jobs you choose for your children might be weeding the garden, tidying their bedroom, or perhaps hanging out the washing. Giving children regular pocket money is a great way to develop their money skills, as well as encourage independence, patience and goal setting.
They will feel proud once they’ve earned enough pocket money to go out and buy something that they’ve truly worked for. It helps you out in the process too! (bonus)
Bills & Budgeting
Involving the children in discussions about the family budget is another way to teach them about money. This helps give them the big picture about costs and spending and may even help them realise why you simply can’t buy them everything they want (even if you wanted to).
By explaining how much money your family has to spend on bills every week and how this money is spent, your children will better understand the costs of family life and how much can be saved for other things.
You could even go one step further and show them how you pay a bill and how much work you had to do to be able to afford to pay that bill.
Saving
Saving is a big one – I’m sure many of us wish we were taught more about saving as children and that we were better at it! Here are a few different approaches to think about, to encourage the idea of saving some of their pocket money.
- The 50%, 40%, 10% rule – Save 50%, spend 40% and donate 10% to their favourite charity.
- Three jars – For younger children, you could have three jars. One each for saving, spending and donating. This method helps the children to understand the difference between saving and spending.
- Budget – You could work with your child to draw up a budget and decide together how to split up the pocket money.
- Investing – You could even consider investing a small amount of your child’s pocket money.
If you want your children to become money smart and financially successful, use some of these tips to get them on their way and instil some good habits. Need a little more help? ASIC’s Money Smart has some brilliant resources available.
Perhaps your reason for reading this article is that you wish your parents had taught you about money and are feeling stressed and overwhelmed about your own financial situation and debt. Don’t worry, at Life After Debt® in Perth and Sydney, we help those struggling with unmanageable debt; We provide honest and sympathetic advice based on your personal situation.
Call us today for your free debt solutions assessment.
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