As the cost of living rises, the last thing you'd want your children to believe is that money grows on trees. But one of the many challenges parents face is how to teach children to respect money and, most importantly, to make sure they don’t pick up bad money habits from an early age.
If you have bad money habits yourself, such as piling up the debt on your credit card -- perhaps it’s time to change your habits, if only for fear that your kids will copy you. If your kids see you using your credit card time and time again, they will see this as something normal. Think about the benefits of letting your kids see you using cash and that, when that cash runs out, the shopping/spending stops.
Jen Bakker from MoneyBrilliant told Huffington Post Australia teaching your kids about credit card debt is one of the most important early money lessons.
“We pay our credit card off in full each month and we explain that we only use it when the money is in the bank. However, when we have stated that we can’t afford something, the kids will respond with ‘Just use the credit card.’ This conversation is a work in progress! That credit card debt is acceptable is not a lesson I want to teach anyone, let alone my children,” Bakker said.
“If kids see you using the credit card for all your purchases, they have no idea if the cash is in the bank or not. All they can see if that the credit card will allow us to purchase. In this society one of the best gifts we can give our children is an understanding of money. We talk about our money freely in our household but we also understand that kids learn by watching and there are some money behaviours we really don’t want them to learn.”
While it’s fine to use the credit card if you don’t have the cash, it’s wise to teach kids that you need to save first before you purchase. Jenny Brown from JBS Financial said too many kids grow up thinking that credit cards are as good as cash.
“Teach kids the value of the money box and loose change -- that as adults if we put it in a money box it would add up versus spending on that extra coffee that quick credit it not good, to shop around for the best deal if you are going to borrow money. Too many adults will impulse buy and use the ‘X months interest free’ at the local shop or car dealer, but they will end up paying more in the end,” Brown said.
“For example, if you’re are saving for a game, or that new outfit and either earn through pocket money or birthday/Christmas money, then you should only use half of that for the new outfit or game. You might want the rest of it one day for a car to get around or the plane ticket to go travelling during a gap year at uni. We need to teach our kids to do the research first and go in prepared.”
The money problems begin when adults and kids don’t know the meaning of ‘budget.’
“Teach your kids that if they want something they need to research how much and look for the best deal, to set a budget and not go over it. Teach them to save at least half of anything they earn or are given for a bigger item. Also pocket money should be earned through doing chores – making the bed, emptying the dishwasher or doing the dishes, setting the table, helping mow the lawn. That way they can learn from an early age it’s just not a given that they receive money.”
It’s also important to let kids know they cannot get everything they want. Brown suggests if kids want a new bike, help them save for half and then the other half can be for a birthday present.
“It’s always good to ‘earn’ that extra thing; that way they’ll more than likely appreciate and look after the bike more than if it was just given to them. It’s hard today because everything is tap and go, it’s an instantaneous society where credit is accepted and cash is unusual. The best thing you can do is teach your kids the value of money and that parents go to work to earn money and that they work hard. Money isn’t easily come by,” Brown said.
If you have teenagers, it’s a good time to teach them about saving for the future. Bakker advices planting money seeds early; making them aware of the cost of a roof over their head, renting or buying a home and the associated costs.
“It’s also a good idea to talk to them about Super, what it’s for and how they can make a difference for their retirement early in their life. Also if they get a job as a teenager, they may wish to save for a car or an overseas trip in future. Teach them about savings accounts and compound interest, and the difference between saving and spending the money they earn,” Bakker said.
Jen Bakker’s tips
1. Delayed gratification
It’s OK to say no to your children. It’s OK to tell them that what they want is more appropriate for a special occasion – birthday, Christmas etc. They also learn from watching you, so expect to see some of your (bad) habits resurfacing with your children when they start earning their own money.
2. Just because your friend has it doesn’t mean you should have it
In the good old days, we had to share. I had Monopoly and my friend had Scrabble and we’d play Monopoly at her house and Scrabble at mine. These days both kids have to have scrabble and monopoly (or the online equivalent). What’s with that?
3. Want VS Need
There’s not much more you can say about this! Other than it’s a great habit to teach your kids, and get them to understand what they really need and what a lifestyle choice is.
4. How to budget
We have a household budget. We talk about how much groceries cost, how much electricity costs and how to reduce these costs. We talk about our everyday spending and make sure the kids understand that if we manage to meet our goals then we will have the money to spend on a family holiday.
5. You don’t have to buy the book
We have some avid readers in our house, and as much as I understand the desire to own books, you don’t have to! Our local library has a fantastic and up to date range. As a library member you also have access to e-books, so if you can’t find the book in the library often you can online.
6. There is often a less expensive alternative
Need a sweet fix? Make your own sweets. Bake cakes. Need new running shoes? Buy last year’s stock on sale. Kids want to do an expensive activity or extra-curricular? Do some research and see what options you have. Want to have breakfast out? Head to the great outdoors with some bacon & eggs, and find a park or beach with a public access BBQ (or take your own).
7. It’s OK to talk about money
If you feel you can’t talk or ask questions about money then it is difficult to learn more. Kids need to understand the cost of credit, how to manage their spending, and who to talk to if they find themselves in difficulty.
8. You don’t have to buy it just because it’s on sale
Even if it’s on sale and you want it, it still costs you the sale price. There is a tendency for people to focus on what they’ve saved in these instances rather than what they’ve spent. At the end of the day, anything that is purchased is money spent.