As parents, we all want to do what’s best for our kids and to provide them with opportunities. Setting your children up financially can help set them up for life. So what can you do?
Teach them financial responsibility
Show them how to budget, teach them about interest and give them a goal to work towards.
Kylie, of The Thrifty Issue, has taught her kids from a young age. After leaving an abusive relationship and ending up homeless with her kids, she decided to be completely open with them about money and teach them financial responsibility.
“When I was homeless, I wasn’t open with my kids about the situation but they have lived it. Now we have open discussions about money, how to make money and be smart with our money. They know about my budget, what expenses we have, my business and how it makes money.
They’re given pocket money and provided opportunities to make money so they can learn how to manage their own. In our home, we split our money into sections – saving, spending, charity and investing. This is a simplified version of my own budget, so my kids are taught the same.”
The split Kylie does with her kids is popular with parents. Spending money they can spend on whatever they want. Savings can be put into a high-interest saving account, or some people split this to create savings and investing money. Savings is saved, investing money can be invested in a way that you choose. It’s recommended children aim to save at least 50% of their income so they learn to live within their means. Lastly, charitable donations to causes they are passionate about teaches children about the world around them. 10% is often a good rule of thumb for donations.
Set up accounts
Get your child their own bank accounts – one for spending and one for saving.
When setting up investment accounts, you’ll need to choose the right structure for your family’s circumstances. Some parents put money into a savings account, some buy parcels of shares or other investment options, and others set up trust funds. A financial advisor can help you work out which option is most appropriate for you.
Once your children start work, make sure they check their superannuation options and are investing appropriately. Even better, have them sit down with a financial advisor to work out their goals and create a financial plan. The sooner they start, the better off they will be financially.
Decide what you will pay for
Will you pay for private education or go public? Is higher education such as university going to be covered by you or do you want your children to use HECS and pay for it themselves? Do you want them to save for their first car or are you going to buy it for them? When you know what you want to pay for, speak with a financial advisor to create a plan which will enable you to pay for these things as well as achieve your other financial goals.
And remember, you don’t have to pay for all of these things. Kids can learn to work, save and pay for things themselves. It’s your choice what you do. Ania of The Sane Mum, introduced the following in her home which has resulted in a change to what she pays for.
“We have what I believe is an unusual pocket money system – the kids get pocket money unconditionally – no chores attached. We decided to do that because in our home chores are a totally non-negotiable part of living here. They were already that before pocket money got introduced and that’s how it remains.
The kids get a dollar per year of their life and they split the money into three: save (for a bigger thing they may want), spend (this is the money they can do with as they please), and give (which at this stage is the money they spend on gifts for others when an occasion calls for it).
Since introducing pocket money at the start of this year, we don’t give in to their wants and demands and I have been so impressed with their savings and the joy on their faces when they purchase a birthday gift for someone from their own money! I believe we are fostering a healthy relationship with money and raising children who are beginning to understand the value of it.”
By having a system in place for kids to have their own money, you can then encourage kids to save and buy things themselves instead of feeling bad saying no to all the things they want. Plus kids learn to be more financially responsible.
Get them to earn their own money
Paying kids pocket money is one way to have your kids earn money, but it’s not the only option. More opportunities exist now for kids to have their own business or they can get a job once they are old enough. Another option is encouraging your kids by investing in shares. There are various apps available for you to invest for your kids where they can see their shares grow as well as learn more about shares. Investing in this way will also help set them up financially when they’re older.
Bron from Mumlyfe does something different to the regular straight pocket money.
“We pay a ‘wage’ to our kids for a big job they do around the house. It’s above and beyond chores, which we feel is just part of being in the family (no one pays me to do my chores!). For example, my eldest daughter is paid $10 a week to tutor her younger sister in maths. My son is paid $10 a week to look after our chickens. My youngest daughter is paid $5 whenever she cooks the family dinner. It works out well for us.”
Kate from Picklebums was amazed when her 7 year old counted out $427.65 from his piggy bank. She’s given him pocket money, as well as her other three kids, and shared some tips for how they do it here.
Be the example
Children are more aware of what we do and say than we usually give them credit for. How we act has a more profound impact than what we say. They will follow our example, so set a good one.
To be able to teach our kids, we also need to learn ourselves. Read books about finance, speak with your financial advisor, listen to finance podcasts and learn all you can. As you learn, put what you learn into practice so you can teach your children well.
Model budgeting and smart money habits. Let them know you have a financial advisor and when you will be seeing them. Be open about your financial goal such as when you want to retire and let them learn by seeing you do well with money.