Being smart with money is a vital life skill that can be taught from a young age. By starting early, parents have the opportunity to establish and build up their children’s financial literacy over time, so that when they come to making big money decisions, they will know what to do. The following article will outline some tips for parents to start the money conversation.
Talking to your kids about money
You don’t have to know all the tricks in the book to start a simple conversation with your kids about money. This could be at home or when you are out for dinner or shopping. This could be a good pathway to talk about spending wisely as well as the importance of prioritising your needs and budgeting.
How is money made?
An important concept to explain to your children is how the money you get to spend is earned through working. This could occur by explaining each time you go to work you are earning money to pay for life’s essentials like food, clothes and housing. It may also be a good idea to explain the money needs to be managed so that it can be used to cover these essentials.
Needs vs Wants
Another important topic that can be discussed is the crucial distinction between needs and wants. This can encourage your children to consider the different things that fall into these two baskets. This is likely to be a very important lesson, once your children are a bit older and start working. It is common when teenagers or young adults get their first job to want to spend their disposable income all at once. However, starting the money conversation early can assist in highlighting the importance of putting some of this money aside for a rainy day. When this time arises, this may be a good opportunity to explain how tracking their spending can ensure they have some money left over at the end of each week.
Now that you have explained where the money comes from, it’s just as important to explain where the money goes. With cashless and tap and go payments considered the norm it is important to explain that when you tap your card, it uses the money that has been earned from working. This will highlight that each time the card is tapped, the account balance reduces, and why it is so important to manage it so that it lasts. To read more about the long term investment strategy and how this can help you to achieve your short, medium and long term goals, click here.
Going out and spending with your children at the shops or movies is an easy and accessible way to show them how to conduct important comparisons between items. This could include comparing different prices for similar items, how to capitalise on deals and promotions, understanding value and how to do quick calculations to work out sale prices. This will help your children to see how your prior conversations play out in real life.
Pocket money is a good strategy to help children understand the value of money and how to manage it independently in a low-risk environment. Many parents may choose to give their children pocket money for doing chores around the house. This will help to replicate how going to work and earning a salary occurs in real life, and once the money is in their pocket it is up to their discretion how they spend it. However, it will also show them that some coins do not go very far.
Another good strategy is to encourage saving. This could occur by setting them up with a piggy bank they have put their loose change or pocket money into. This will be a useful tool to show them how the money can accumulate over time, and when they are old enough this provides a good foundation to discuss concepts such as compound interest. To read more about compound interest, click here.
If you would like some assistance with structuring your investments to help provide for your children’s future, please click the link to organise a complimentary 20-minute phone call with an EPG Wealth adviser.