What’s the value of a dollar today versus when you were a child? Do you remember getting your pocket money in coins and notes, and having a physical statement book for your savings account? Well, times have changed.
The digital age is well and truly here, and with this has come many alterations in the way we work with and manage our finances. Teaching children the value of a dollar has never been more challenging, according to experts. "Financial literacy is very important and everyone should have an understanding of it, because it can have long-lasting effects on your life,” says Griffith University senior lecturer in financial planning Dr Rakesh Gupta in an ABC interview. “When (kids) are able to read, write and count is when we should look at talking about money."
The world is constantly changing, which is why it’s so important to teach your kids about money and general finances from a young age. Teaching them about the value of earning cash (through chores, allowances, savings and pocket money), as well as understanding how not to overspend, is part of a parent’s duty. As adults we need to know how to avoid going into debt, and how to keep to a budget. Believe it or not, these are skills we can begin learning around age 5 or 6.
Just think about how different transactions are today from a couple of decades ago. Research from Roy Morgan found that “most Australians now use digital payment solutions”, such as tap-and-go or mobile payments in-store and digital services like PayPal for online shopping. Because physical cash is becoming less prevalent, it’s easy for inexperienced consumers to overspend because they can’t actually see the money they are spending.
According to the Real Concerns Index 2019, “finances” are on par with “climate and the environment” as one of the biggest concerns for all ages — so there’s no better time to open up the lines of communication around money than right now.
We’re living in the age of “invisible money”
With easy access to contactless cards, online payment methods and new options like “buy now, pay later”, it’s no wonder people can easily get stuck in financial ruts. In a world where “invisible money” is the norm, it’s crucial that parents and guardians educate their children about how to manage their finances from a young age.
This is even more important when you consider the role smartphones play in our finances today. Nearly 3 in 4 Australians (72.4%) use digital payment solutions including their mobile phones. Analyses of the Roy Morgan Young Australians survey by the Australian Communication and Media Authority (ACMA) found that almost half (48%) of children aged between 6 and 13 either own or have access to a smartphone. Factor in how easy online shopping can be, all they need is access to a credit card or their parents’ banking app PIN and they will have the ability to make instant purchases.
The critical moments in life to teach kids about money
Consider a few pivotal life stages where financial education can be most effective:
Age 5: Pocket money/allowance
Start giving your child pocket money from school age
Maybe you reward your children with a small allowance for doing their chores and helping out around the house – why not also use this time to open up a savings account for them and teach them about long-term saving and the power of earning interest?
Rather than giving your children a set amount every week and letting them do whatever they want with it, use this time to teach them about digital currency. You could transfer funds into their account and send them receipts every week, for example, which will help them get a better grasp of “invisible money”. Age 5 will be too young to grasp this concept fully, but open up the conversation now, and talk about numbers, counting, addition and subtraction, for example. When they have saved enough money to buy something they want, make a big deal of this, and congratulate them on their efforts.
Age 11: Savings plans for personal goals
As children approach pre-teen years, teach them to set a savings plan
Is your child asking for something big and expensive? Rather than giving them the item straight away, teach them about setting aside some of their own money, or doing extra work around the home to pay off part or all of the item. When it’s their own money they are spending, they’ll start to appreciate the value of things more. As your child becomes a teenager, they will naturally want more “things” to keep up with their friends. Teach them that they “can’t have it all”.
Age 13: Planning and budgeting
Give money for special events, but teach kids to budget
Download a budgeting app or use a spreadsheet on their laptop to inspire a savings plan. Is your child’s birthday a few weeks or months away? Help them plan their own party by setting a budget for the event. You can discuss the cost of things like party food, decorations, gifts and the birthday cake. This will show that when budgeting, you always have to consider the price of individual items as well as the overall cost. Generally speaking, this may be a great way to talk about money with children aged from 13, however each child is at a different developmental stage so take this into account.
First job – age 16
Once a child hits age 16, they can think about formal work
To work without a special permit in most states and territories of Australia, you must be aged at least 15. Non-formal arrangements can include yard work, babysitting, dog walking and odd jobs, which some kids do for trusted neighbours and family members from 13 and onwards, based on their level of maturity. Once your child starts working, they will eventually need to learn about paying tax, superannuation, casual rates of pay and personal and annual leave. Although not all of these might be relevant for your very first job, these are life lessons and skills that students can begin learning at this age.
Financial resources to help you
Other practical resources that can help educate kids about money include:
- ASIC’s MoneySmart: A government page dedicated to the basics of financial education for kids, from pocket money to jobs and more.
- Rookie video series: From MoneySmart, this series of videos helps cover topics like purchases that are ‘too good to be true’, scamming, online shopping and more.
- Be MoneySmart: The first in a series of financial-education workbooks for young adults.
- Royal Australian Mint: Activity sheets on the history of Australian money and information on physical coins and bills.
- Savings goal calculator: To start their own savings journey.
- Useful savings apps: A selection of Australian savings apps available for kids to learn on their own.
Use every appropriate moment to teach your kids about needs versus wants. When they are working, it’s also an ideal moment to discuss financial-safety buffers with protective measures like income protection insurance.
You can even open up discussing about how you save money and what you do to protect yours and their future. When money is discussed naturally and in everyday conversations – particularly if they are conscious of household expenses like power bills, mortgage or rent payments, and insurance premiums – then communicating and successfully managing money will become very natural for them.
Kids are never too young to start learning about money. In fact, with our finances evolving into digital and contactless payments, it’s more important than ever to start those conversations today.
If you’re unsure how to open up the lines of communication about money, visit Income Spotlight for money-management topics and discussion starting points.