We all want our kids to be financially better off than we are, but how do we do this? Taking the time to teach your kids about money and starting early is the key. Here’s how…
The initial introduction
Learning the basics of commerce and money handling is built from experiences like going to the supermarket and having your kids pay for items with their own pocket money. Simple tasks like this teach them how much things cost and help your children become more aware of the value of items.
Teaching your children to save and budget as they grow up is highly important but it can also be fun. Encourage your kids to set a few financial goals, such as buying a new toy or a new bike. Then, take a trip to the bank and set up a savings account for them so they can see that every time they put money in their account, they are closer to reaching their goal.
Explain to your kids the costs that you budget for on an everyday basis around the home. Show them not only the tangible costs in your family home, but also the intangible costs such as water and electricity bills. Teach them that money needs to be put aside for these costs and explain the implications of over-spending.
The concept of interest
Your kids may well be aware that the bank will pay them interest on the balance of their account, but have they considered that as their account balance grows, not only due to regular deposits but from the interest they earn, subsequent interest payments will be calculated on their money AND the interest they have previously earned. This is called compound interest. The ASIC MoneySmart Calculator is a great tool to show them just how their money can grow over time.
First step into the real world
Pocket money is one thing, but when your kids get to the age where they are able to take on casual employment, encourage them to do so. In addition to earning their own money, they will also learn about independence and what it means to have a strong worth ethic.
Financial growth and investments
Once your children are mid to late teens, it is a good idea to start introducing to them to more complex financial products. Most parents want to be able to help their kids buy their own home, so helping them understand residential mortgages and how they work is important. Explain to your kids how financial markets can affect interest rates and how this can impact them if they have a home loan. The more you can teach them, the more confident and well equipped they’ll be to make positive financial choices in adulthood.
If you are considering helping your adult child purchase their first home, come and talk to your Launch Finance Broker to discuss the various options available.