2012 is upon us and the kids will soon be trundling off to the school-yard. Curricular-a-plenty will be firing up, to fill your kidâs brains with who-knows-what.
But what about âFinancial Educationâ for your kids? Whoâs responsible for this? Ultimately – you are!
We donât talk about this much in society, but in my role as a Financial Adviser, I see this as a fact that needs to be addressed: Financially Literate Parents = Financially Literate Kids.
Iâm not talking about parents becoming financial markets gurus or serious investors (although that would be nice) â Iâm just talking about simple steps that will ensure your kids get off on the right footing. This foundation could very well set your kids up financially for the rest of their lives. Letâs look at some key avenues that you as parents can easily adopt and explore:
Donât Talk Negatively About Money
Put your hand up if you heard any of these statements from your parents when growing up: âI hate money!â âWill we never get rid of this credit card debt?!â âLetâs just get a loan on the house to take this holiday/buy that carâ. âWe canât afford that!â Or how about growing up and being party your parentâs full-blown arguments related to money?
Do you know whatâs happening in a childâs mind when they consistently hear and see these exchanges related to money? They form a long lasting negative outlook on money, how it badly affects the family, and that itâs ânormalâ to have mountains of consumer debt. Their perception? Money is BAD! Please donât get me wrong, Iâm not asking that you raise your kids to be âlovers of moneyâ â thatâs not what this is about. Iâm simply saying that your reactions to money and debt will most definitely rub off on your kids and will probably be the foundation that they build their financial literacy on.
In short: Be VERY careful how you talk about money around your children. Think about what youâre instilling in them just by what they overhear or see from you. Theyâre taking it all in!
Getting your kids started in a savings plan as soon as you can. This could be a plain old bank account or you could make use of the Government’s KiwiSaver scheme.
The government is still giving all KiwiSaver starters a $1000 kick-start so set your kids up, wait for the $1000 kick-start, then show them the balance of their KiwiSaver account. Get their buy-in that theyâre growing savings to help them in the future. Let them see how invested money grows over time. The younger they are, the longer they have to benefit from compounding interest.
And, when they see how their investment ebbs and flows with the economy, theyâll quickly start to appreciate how markets work, and how this benefits them over the long term. If you can afford to, start a direct debit with weekly amounts being deposited. This can be as little or as much as you want. Thereâs no rule that says kids under 18 have to put money into their KiwiSaver. But, if you start a savings plan for them now, you can show them how it grows, and tell them that this money can be put towards buying their first home (under current law).
In short: Have a savings plan for your children, but donât do it behind closed doors â Show them the money going in, show the updated balances, show them how their investment is growing â
Reward the Kids for Cheaper Household Bills
Kids cost a lot of money right? Right!
So, why not ask them to help you defray some of those costs by getting their input into how you can cut down on household bills and expenses? This could be anything from cutting down on calling cell-phones from the home phone, to buying cheaper brands at the supermarket. Even things like turning off electricity sucking items in their bedrooms to save on power. Again â just try to get their buy-in with helping your family to save money on bills and expenses.
Hereâs the kicker â reward them if they help knock down the costs! Yup, give them some moola for helping you with this project! Easy! Hereâs an idea: Average out what your particular expenses are costing you monthly one-by-one. Or just choose one at a time to tackle. If your childâs actions reduces these costs below the average, split the savings 50/50 with them. In other words, give them 50% of the savings in cash as a reward. Youâll definitely have their buy-in now!
In short: Get the kids to help with saving money on household bills and expenses. If you get those costs down, split the savings 50/50 and reward their 50% with cash.
Teach Them About Credit Cards and Loans
My blurb here is pretty well covered in the section above about how you react to money in front of the kids.
Simply put, teach the kids from a young age that credit cards and loans are there only when absolutely necessary. Credit cards should not carry balances over, and should be dissuaded as a payment method altogether. Only if youâre able to pay off the balance monthly, should you allow your kids to see the plastic being flashed about. They must understand that balances are cleared and that consumer debt is âbad debtâ!
You can even practise this principle in your family. If your child wants an ‘advance’, consider charging interest on the amount so that they begin to understand the real cost of borrowing.
Here are some great websites that can help you help your kids to become more financially literate:
Sorted’s section for parents
Online games to teach kids about money
Teaching kids about money