November 19, 2012
TEACHING children about money is not just about dollars and sense.
It also teaches them about making choices. Money and how to spend it is really about decision-making good and bad – such as to spend, to save or to give. And you’re never too young to learn.
Giving kids the power to understand money and finances empowers them to make good decisions, says Peter Cuzner, a financial literacy expert with the Australian Securities and Investments Commission.
> > Early years
“In our modern digitally-connected world, money is becoming less visible and less tangible,” Cuzner says.
“With increasing online shopping and easy access to credit, learning about money and finances needs to start at an early age, well before school.
“Even very young children, including pre-schoolers, can learn the value of money and saving for small goals.
“For example, show them how much $2 or $5 can buy in the supermarket.”
Cuzner recommends working out what your child might want to buy and then help set a goal for them to save or earn money to pay for it.
“Discuss how much they will need to set aside from their pocket money each week to reach their target,” he says.
“Pocket money is a great way to teach children that money has to be earned that it doesn’t magically appear from an ATM.
“Kids should be involved in family finances as early as possible and obviously at appropriate levels. This avenue provides a demystifying of money and can make it a part of normal family discussions.”
> > Teens
The chief executive of YWCA’s NSW division, Kate Frost, says teens and older students are put under a lot of pressure, not just socially but also financially.
“Kids these days have so much more financial pressure on them and they feel as though they need to keep up,” she says. “We need to set them up as early as we can to learn about money.
“The way to teach kids is to give them the information and then let them make decisions around that. Let them see or experience the consequences that their decisions produce.”
YWCA and investment bank HSBC run a free national program at schools, Money Savvy, for 15 and 16-year-olds.
It includes a learning session, quiz (at ywcansw.com.au/money-savvy.php) and first-hand advice and examples from volunteers and mentors.
Key lessons include how to make a budget, mobile phone scams and what the small print on contracts really means.
Frost, who spent 25 years working in banking, believes early intervention and equipping young people with skills and tools is the key to money-smart adults.
“They’re more likely to pass this knowledge and positive behaviour on to their own children, thereby breaking the cycle of poor financial decisions,” she says.
Hewison Private Wealth director and financial adviser Glenn Fairbairn says kids can benefit from learning about investing at an early age, such as how certain types of savings or investments can earn them extra money.
“Consider investing a portion of your children’s savings into listed investment companies, which are listed on the stock exchange and provide a diverse exposure to the Australian sharemarket,” he says.
“LICs are an excellent tool to teach young investors how the Australian sharemarket operates and it will also show them the benefits of investing in shares for the long term.”Teach children the power of compound earnings and how it can help savings grow even faster, and encourage them to prepare a budget no matter how simply written it may be.”
> > Young adults
Many young adults are prone to making the same financial mistakes as their parents, ASIC’s Cuzner says. However, explaining how the mistakes were made and talking about the consequences can help them avoid similar mistakes of their own.
“Parents should be open and share those examples,” he says.
“Discuss with them first-time purchases and contextualise the conversation around a real-life purchase.”
Important topics to consider include consumerism, peer pressure, values, attitudes and personal circumstances.
Examples of discussion points include car loans, mobile phones, contracts, credit cards, impulse buying, household and living costs.