How do you get started with teaching your children about the value of money? It’s never too early to start saving, explains Yvonne Walus. This article is part of our Tots To Teens and Simplicity partnership to help families tackle the increasing cost of living.
The shorts of this article:
- ROLE MODEL and show your kids, don’t just tell them…
- TALK ABOUT IT so your kids are wise, not ignorant…
- Give them HANDS ON experience with pocket money (and see the video)…
- CONTINUE THE LEARNING by presenting kids with choices…
- Handy PRINTABLE: Kids’ saving tracker
- KIWISAVER and why they should start early…
Read on to learn how…
While it may be tempting to let our kids enjoy their childhood and not worry about money, teaching them financial intelligence at an early age means they’re more likely to manage money well when they’re adults. Money is both easy and difficult to understand: It’s easy to accept that you need to pay for something you want, but it’s difficult for children in modern society to observe the exchange in real life. Because most of the time we pay by waving a piece of plastic like a magic wand, money is almost invisible to children, and they simply don’t see why you may not have enough money. “Just double-click your phone, Mummy!”
So how do you start your children’s financial education? Learning through play is a great way to support their natural curiosity and their inbuilt need for experimentation. You could help them set up a shop with pretend money, or sit down to play board games like Payday and Moneybags.
1. MODEL MONEY MANAGEMENT
Children learn by observing. Your own behaviour will leave a bigger impression than you expect, so make sure you lead by example. Next time you go to the shops, show them how you get cash from the ATM (make sure they understand it’s like a piggy bank, not like a money tree), how you use it to buy groceries, and how you can’t spend more money than you have. Better yet, provide them with the hands-on experience of presenting the cash to the teller and receiving the small change.
Fun fact (or maybe not so fun): Some Kiwi teenagers are so used to payWave, they don’t actually understand how to purchase something with a bank note, and can’t recognise the different denominations at a glance.
2. TALK ABOUT IT
Start conversations about money with your children, or within their earshot. We’ve been raised to believe that talking about money is not polite, and yet passing on some simple financial advice can really benefit the next generation. In his financial education book Money Made Simple, MD of Simplicity, Sam Stubbs warns, “Ignorance about money can drive people into the arms of payday lenders, loan sharks and parts of the finance industry that are more interested in making money from you than for you.” So, do talk to your kids about having to work to earn, and about needing money to buy food and toys. Once the kids understand numbers, show them that a slab of chocolate costs as much as a kilogram of apples and ask which one would last longer. Work out together whether buying bulk or a no-name brand is better value for money. Involve them in spotting weekly specials and using a calculator to add up the items in the trolley to check that they fit within your agreed budget.
3. HANDS-ON EXPERIENCE
Make sure your children have their own money to spend and save from a young age. Some revenues may include birthday money, the tooth fairy, pocket money, or being paid for small jobs around the house. Let’s focus on the last two ideas. Some everyday jobs should be done for free as your child’s contribution to family life, like setting the table and taking the dog for a walk, but you may consider paying for extras like ashing the car or sweeping the footpath. As to the issue of giving children pocket money, Simplicity personal finance expert Amanda Morrall believes that it’s not always a good idea. “Money trees don’t exist, so why would you pretend to be one?” she argues. “Sure, there are windfalls like lotteries, bonuses, gifts, and inheritances (if you’re lucky), but as an adult, you don’t often get paid for doing nothing.” And should you think that’s a bit unfair, you could still give them pocket money, but not actually hand it over to spend. “With the $20 a week I might otherwise give away to my kids as pocket money,” Amanda says, “I instead deposit it into their KiwiSaver accounts. Boring for them, but investments from birth mean they’ll be way ahead of the game by the time they start working and can take over the accounts management themselves.” Another way to use pocket money to educate could be to teach your kids how to budget for their own expenses with it. Liv Lewis-Long (Simplicity’s head of marketing) says, “My parents used to pay us double our age per week in pocket money, but this had to cover all our everyday expenses. We would sit down with Mum at the start of each year and create a budget that covered clothes we’d need, a monthly activities allowance, and the leftover to spend as we liked. It certainly ingrained good spending habits for later in life!”
DID YOU KNOW? Monopoly may not be the best board game for young players, because it was invented to illustrate the evils of capitalism, not the virtues of money management!
Ask your children what they might like to do with their money once they earn it – this is a fabulous opportunity to educate about saving up for something more expensive. Discuss the different types of saving: The piggy bank that’s available instantly (which could be both good and bad), the short-term savings account (for a toy or a school trip), the long-term savings account (for their education), investment funds, or KiwiSaver. Explain that a savings account is generally not for amassing and growing money. Rather, it’s more like a storage locker for protecting it. If you want to grow money for a specific longer-term purpose (like tertiary education), consider starting a low-fee investment account as soon as your child is born, and contributing to it on a regular basis. Simplicity offers investment options for parents to set up on behalf of their kids, which are simple and easy to manage.
4. CONTINUOUS LEARNING
Being financially literate goes beyond earning and spending. There’s also budgeting, investing, borrowing, and taxes. Create opportunities for your kids to learn these concepts. For example, every time they earn money, they could be required to pay 10% of it into the household fund – this will teach them about taxes. You can teach budgeting by allowing your kids to make choices for themselves, for example: “Yes, you can spend all your Christmas money on lollies, but then you won’t be able to buy the Barbie.”
Like in Liv from Simplicity’s example, you may decide to give older kids the money you would normally have spent on their clothes and let them make their own decisions, reminding them of their needs (bigger shoes, warm jumper) and helping them plan how to balance the needs with the wants. If they make inevitable mistakes, that’s okay – it’s part of the lesson. Don’t bail them out! Or, if you do, charge them interest on the “loan”. (Of course, if you feel uncomfortable taking your child’s money, you could put it back into their KiwiSaver account!)
5. A word about KiwiSaver
Investing in KiwiSaver is a great way to develop long-term savings habits and make sure your child has more money available, either when they turn 65, or when they want to buy a first home. Starting your child’s KiwiSaver account early means their savings will be invested (and accrue compounding returns) for a longer time, earning more bang for their buck, or – literally – more buck for their buck. Using sorted.org’s savings calculator, Sam Stubbs (Simplicity KiwiSaver’s founder and MD) says, “You can see if you put one dollar a day into a KiwiSaver growth fund from the day your child was born, by the time they turned 18, they could have almost $10,000 saved.” KiwiSaver accounts provide a practical, lower risk way to show your kids what investing is and how they can benefit from saving little bits of money early and regularly.
Government Contributions to Kiwisaver
KiwiSaver members between the ages of 18 and 64 are probably eligible for a government contribution. The government will match 50% of your contributions up to a maximum of $521.43 each year, so to qualify for the maximum government contribution, the member needs to have contributed at least $1042.86 of their own money between 1 July to 30 June. If your child is over 18 but not yet earning and contributing regularly, you may decide to top up their KiwiSaver account so that they qualify for some or all of the government contribution.
The information provided and opinions expressed in this article are intended for general guidance and are not financial advice or a recommendation. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver Scheme and Investment Funds. For Product Disclosure Statements please visit Simplicity’s website: simplicity.kiwi.
Simplicity is a low-fee, nonprofit KiwiSaver provider (owned by the Simplicity Foundation), committed to making everyday Kiwis richer and smarter with money.
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