How to teach your kids about money: earning, saving and spending

As parents, it’s natural to want your children to have happy, comfortable and fulfilling lives. And you can play a huge role in shaping your little ones’ habits and behaviours to ensure they are set up for success.

Building financial literacy and healthy money habits could have a long-lasting effect and contribute to them being able to pay their bills, buy a home and even retire comfortably.

If you want to set your kids up by teaching them to be good with money, these tips will help:

1. Show them the money

To start getting your kids comfortable with money and how it works, consider involving them in some of your everyday financial tasks and use them as teaching opportunities. The level of detail you share with them will depend on what you are comfortable with, but some examples of how this could work are:

• When your paycheck comes in, let them know you that you received it for going to work and providing a valuable service to other people.
• While paying bills, tell them that you’re taking the money you earned from work to pay for electricity, internet and other essentials.
• At the supermarket, talk to them about how much you’re paying in exchange for the groceries you’re buying, and explain that money can only be spent once.

Most importantly, if your children ask you questions about money, consider answering them.

2. Lead by example

Children, especially infants and toddlers, often learn by watching what you do¹. If they see you running up debt, making impulse purchases and neglecting to save, it’s more likely that they’ll remember those behaviours and copy them later in life.

On the flipside, demonstrating positive financial habits like saving and being conscious about how your money is spent could have the opposite effect and embed good habits they retain for live.

3. Use pocket money wisely

If you’re serious about helping your kids understand how money works, pocket money can be more than just a weekly stipend to keep them stocked with lollies. Used well, it can be a powerful tool to teach them concepts like earning a wage, saving and appropriate spending.

Consider trying these strategies out at home:

• Encourage them to save a portion of their pocket money in a clear jar. This can be a powerful visual illustration of how savings can build up over time.
• Set a savings goal for something they want, then let them pay for it themselves in the shop when they achieve their goal. This will help teach them that if you delay gratification, the rewards can be worth it.
• Ask that they give a portion of their pocket money to a charity or cause of their choosing. This can foster a sense of community and help them understand the importance of sharing their good fortune.
• Show your children that money should be earned by asking them to complete household jobs like emptying the dishwasher or cleaning their bedroom. It may be difficult, but withholding pocket money if tasks aren’t completed can help them learn than they only get paid if the job is done.

4. Open up a bank account

If your children’s savings have been going well, they may have outgrown a piggy bank and need a bank account. This is a chance to teach your child about the concept of receiving, saving, and spending digital money, as opposed to physical coins and notes.

Similar to the concept of a savings jar, it can be useful to open a savings account and a spending account to encourage them to save a portion of what they earn. You’ll also be able to use this as an opportunity to teach your little one about online banking, the concept of earning interest on savings and using digital rather than physical money.

5. Talk about debt

Australian household debt is among the highest in the developed world². When your child or teenager grows up, it’s likely that they’ll take on some debt of their own. Before they do, it’s a good idea to teach them that:

• Not repaying debt can get you in trouble with others.
• You should never take on debt unless you understand what you’re getting into and are certain you can afford the repayments.
• Debt isn’t inherently bad, but some types of debt can be more beneficial than others e.g. paying for a university degree or a home with a loan may put you in a better financial position in the long run, whereas taking out a loan to buy a sports car may not.
• Debt usually means you pay more for something in the long run.

6. Start setting long term goals early

Generally, the earlier you start working toward your financial goals, the more you can achieve.

To get your kids started while they’re young, set simple, achievable goals they can achieve by saving their pocket money - such as buying a new toy, or paying to see a movie.

With teenagers, you can be a little more ambitious. Consider helping and encouraging them to find part-time work (if they have time outside of school) and to use their income to save for bigger purchases like a first car or a trip away with friends. This will set them up for setting and achieving bigger goals later in life such as saving for a house deposit or paying off their student loan.

Building healthy money habits often isn’t part of schools’ curriculums, so for your kids, the road to being financially secure often begins with the habits you help them form. By starting early, you’ll be doing everything you can help make sure that they’re able to take care of themselves later in life.

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Published May 2021