Over seven years of primary school, kids go from crazy little tackers, to mini adults who have Instagram accounts and take way too many selfies. School teaches children a great deal, but parents have a lot to teach them too. Apart from the occasional maths problem, the education system does not cover the practical side of dealing with money. The nitty gritty on how money is earned, saved and spent falls to parents.
Make them earn it
Put them to work. If they’re small, suggest some money in return for some jobs around the house or perhaps washing the car or gardening (something you might pay for yourself). Don’t make it too easy. Agree an amount beforehand and expect a certain standard of work. If they’re old enough, encourage them to get a job. Try Coles or Woolworths, or help them do up a CV and try the local shopping centre.
Lots of kids are given cash for birthdays and Christmas. Saving for an item can be a great incentive to be careful with their money. Instigating a spend/save/charity mindset will help them manage their windfall. Encourage them to put aside an amount for their chosen charity, keep an amount to spend, and make sure some is saved for a future goal, or just for the future in general.
The poetry of compound interest
Einstein called compound interest the ‘eighth wonder of the world’. Investopedia describes it as ‘generating more return on an asset’s reinvested earnings1’. Put simply, you invest your cash in an interest-bearing account. The interest you’re paid is reinvested, compounding your investment earnings.
Business Insider’s Andy Kiersz explains the benefits of starting to save early in this piece2. Basically, the decision to start saving $200 per month at 25 years old, compared to 35, results in a nearly $200,000 difference at 65.
Children are perfectly placed to benefit from the wonders of compound interest. If they put aside an amount as savings from a young age, they will find their money will grow significantly over time, resulting in a potential house deposit, car or overseas travel.
The practical things
In Australia, children over 12 can open their own bank account. If they’re under 12 you must be the trustee. Many banks offer kids no-fee accounts and bonus interest for regular deposits. An older child with a job can receive their pay into this account. A debit card works like a credit card (in terms of convenience of use) as long as there are funds in the account, so they can’t get into (too much) trouble.
Having their own account and card can be a great learning tool for older kids. They see how satisfying it is to see a healthy balance. A few rookie errors won’t hurt either. Having the unpleasant experience of a purchase declined due to lack of funds in their account will quickly teach them to be careful.
It’s never too early to start learning about money
Your child’s financial education is as much your responsibility as teaching them their manners, or to ride a bike. The earlier you start and the firmer you are with them, the better they’ll be at earning, saving and working towards a goal.
Over to you
What have you told your kids about money? Do you have any tips to share?
Article by Lumix Wealth
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