Top tips for teaching kids how to manage money

With today’s children growing up in a world of rocketing living costs and economic uncertainty, setting them up for financial success has never been more important. But what do they need to know, and how do we make it happen?

First up, while earlier is always better, there is no end point when it comes to improving our financial literacy; the more any of us know – at any age – the better equipped we are to make important choices. For our children, that means helping them develop a healthy money mindset and guiding their financial behaviour at every age and stage.

Where can kids learn financial literacy?

While Way Forward is continuing to press for a nationally coordinated strategy for financial literacy education in schools, we know that preparing our young people for the real world is a responsibility we also have to shoulder at home.

As parents and caregivers, we are in fact our children’s principal teachers for all things money related, which means that the language we use and the financial habits we model are fundamental to their learning.

That might sound like a huge responsibility, but you don’t need to take a crash course in finance just yet! The most important thing we can all do for our children’s financial future is to make positive money conversations a part of everyday family life.

Why do children need to learn about money?

When we teach our kids about money and support them to understand and take responsibility for spending and saving from an early age, we’re laying the foundations for their financial future.

How we communicate about working and earning, about borrowing and debt, and about saving and prioritising, contributes to their core beliefs and expectations around money and can influence how they navigate their finances.

Given how much children absorb from the world around them, it’s inevitable that our own relationships with money will spill over into their understanding of ‘normal’ financial behaviour.

Think about it – how many of your family’s spending habits have you mirrored in your own life? Then think about how many times your child has parroted your words, mimicked your behaviours or literally walked in your shoes.

So, are you happy to produce a financial mini-me?

How should we talk about money at home?

Knowing how easily influenced our kids are by our words as well as our behaviours, it’s important we examine our internal financial ‘script’ and think about opportunities to send out positive money messages.

I’m just bad with money

Take away all the scary fine print, the APRs and AIRs, the interest percentages and the credit scores, and underneath it all lies a simple reality – being ‘good’ with money fundamentally requires us to spend no more than we earn.

When we create a negative narrative, such as being inherently ‘bad’ with money, we’re embedding the notion that our finances are outside our control.

Instead, by being accountable for what we’re spending, and where, when and why we’re spending it, we take the first steps towards rewriting that script.

Ultimately, our goal is to get to a place where our outgoings are less than our income, leaving us with a margin for saving, however small (for those rainy days that always come).

That concept of creating and maintaining your own financial cushion for comfort or emergencies, rather than always spending down to your last cent, is a huge lesson for kids and the core principle of a saving mindset.

Everyone has debt

Debt is a tricky thing – yes, most of us have some, but there’s an important line between productive debt (such as a home loan or HECS debt to improve your career and earning potential) and the debt spiral of high interest credit cards and seductive buy-now-pay-later schemes.

Fundamentally though, debt breeds debt; the more you borrow, the more you owe.

Which is why it’s so important children understand that debt, isn’t an ‘everybody’ problem and it’s neither inevitable nor comfortable.

However, if you do have debt, it’s just as helpful to talk about that too – how you’re paying it back, any regrets you have about how the debt was acquired, and the steps you’re taking to make sure it doesn’t happen again.

If we just had x amount more money, our problems would be solved

An important part of our relationship with money lies in how we view its place in our life – as a tool, or a solution. Money can certainly bring security and comfort, but (if the lottery winners are to be believed) it’s far from a fairy-tale ending.

If you’ve ever had a decent pay rise, you’ll remember that feeling of revelling in the extra money. Whether it gave you an occasional treat that month, or took you from stressed to comfortable, you’ll also know that the celebrations probably only lasted for one pay cycle.

Typically, when we start earning more, our outgoings automatically rise to fill the gap. We buy the things we’ve held off on, throw the extra items in the trolley and choose what we want, rather than just what we can afford. Suddenly we’re back to square one.

In effect, without pretty robust financial management skills, there is no such thing as *enough* money.

I want it and I deserve it – even if I can’t afford it

Most of the time, the things we think we need and deserve are passing fancies, but even the smallest of purchases add up over time.

The truth is, what we really want and deserve is to feel financially secure; to be free from debt and worry, and to be able to meet our core needs confidently and comfortably – food, water, safe shelter, heat/cooling and clothes.

Being able to talk about the difference between need and want, is a crucial starting point for those all-important family financial conversations.

7 ways to teach kids the value of money

While getting your money messaging right is hugely significant, the concept of ‘money’ and ‘value’ can be hard to grasp for children who haven’t yet had to work for it. Give them the practical experience they need, with real money, real-life budgeting and everyday decision-making, to nurture their savvy shopping and saving instincts.

1. Give children access to money and the opportunity to pay

Build children’s understanding of transactions and confidence with money, by talking about how you earn it, where it’s kept and how you decide what to spend it on. While cash transactions are fast becoming a thing of the past, make sure you familiarise children with coins and notes as well as with debit cards, and then give them the opportunity to make payments themselves. Talk about the relative costs of items, what you could buy with a particular amount of money, as well as how and why you check your bank balance.

2. Involve them in decision-making

Boost kids’ financial capabilities and (hopefully) take some of the pain out of the relentless ‘I wants’, by talking about what items cost, and the impact that would have on your capacity to spend in other areas. For example, if they’re desperate for a visit to the pool but are also hitting you up for a new app, talk about the costs of each, discuss the benefits and then ask them to decide which they consider to be the best value. Or, if they’re begging for an ice-cream, show them how the money you’d spend on two ice-creamery cones could be used to buy a whole tub from the supermarket instead!

3. Help them earn, save and spend

Whether through pocket money, from chores, container recycling drives or even birthday/holiday money, show kids how cash accrues, what it can achieve in small increments and then cumulatively. Build excitement by helping them to count what they’ve saved and measuring it against an exciting goal. You can even offer to match what they’re putting aside – an extra incentive while they build those saving muscles!

4. Ask them to contribute to ‘must have’ purchases

When you’re being hounded for the latest ‘must have’ item, it’s a great opportunity to talk to children about how they can contribute, either by chipping in their savings or by taking on some extra responsibilities. A few weeks or months after the money has been spent, ask them to reflect on whether it was a good decision and a good use of their money.

5. Set a budget and set them loose

Make grocery shopping a team sport by talking about how you budget for the week, including your choice of meals, the places you shop and the brands you buy. Look at the options available for each item on the list and involve the kids in working out which signifies the best value. For older children, you can even hand them a list of ingredients and a budget and send them off to shop.

6. Increase their responsibility as they grow

If you’re trying to prepare older children for the real world – or nip expensive habits in the bud – work out what you spend on their necessities in a month, and hand that over to them to manage themselves. Everything from haircuts and toiletries to school lunches, but don’t forget to reinforce that all-important ‘saving’ expectation – the step that will take them from debt-free to financially secure.

7. Show them how to create a budget

Days out can be hugely expensive, but an invaluable learning opportunity. Put the kids in charge by getting them to plan everything they want to do within a set budget; show them how to itemise costs, decide what they can afford to do, and find ways to make savings and get the most bang for their buck. Make sure they include absolutely everything, from snacks on the road right through to fuel, and hold them accountable for over-spends by forcing recalculations on the hoof… after all, that’s real life!

Facing up to family debt

Giving your kids a financial head-start is about much more than money – it’s about nurturing the instincts that will carry them through life. Whatever your current financial situation, creating solid money-management habits will pay dividends for the whole family; get started today with our free budgeting tool.

Equally, if a better financial future feels out of reach because of problem debt, don’t despair – our specialist Financial Hardship Advocates are here to help. Get in touch today to start building your new, debt-free Way Forward.