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Australian columnists have spent all year arguing over how much financial help parents should give their children. We’ve seen investment properties for babies, Boomer mortgage guarantors, and plenty of informal loans. No one seems to know how much is too much.
While it’s only natural for parents to leverage their wealth so their children have better financial outcomes, not all young parents have the ability do so. What all parents can do, however, is pass on sound financial advice.
If done properly, this can be even more valuable than paying for the deposit on your child’s first home.
Get in early
We teach our children manners young because we hope that it will stick and last a lifetime. Financial planning is no different. Try a few of these tips with your kids.
- A savings account is key. Instead of letting family members and friends buy regular presents for your child, encourage them to make modest contributions to a savings account set up for your kids. The interest rate on many youth savings accounts is above 2%.
- Teach the value of money. Don’t just hand out pocket money; make it contingent on the completion of chores and housework. Put a portion of the pocket money into their savings account and give them control of the rest.
- Mistakes are good. Give your child control over their piggy bank. Don’t force your kids to make the right decisions. Instead, let them blow their allowance on lollies from time to time, but be clear about the benefits of waiting.
- Involve them in your decisions. Whether it be at the bank, the beachside kiosk or the supermarket, show your children where you spend your money and why. Writing shopping lists together can be an easy way to separate ‘wants’ from ‘needs’.
- Encourage shared responsibility. In the middle of winter or the height of summer, your power bills will rise drastically. Sit your children down and discuss why things they take for granted around the house have a monetary value.
Beyond the piggy bank
Let’s face it: saving can be boring. Putting money aside steadily may bring future rewards, but you may have a hard time explaining this to your young one. It’s important to make your financial advice fun.
Many Australian Millennials grew up with Commonwealth Bank’s ‘Dollarmites Club’; a colourful program that made saving up your pocket money enjoyable. CBA continues to lead the way in classroom financial learning with Start Smart workshops for primary-aged students. Start Smart has developed an engaging new narrative for financial literacy using virtual reality technology.
While you may not have a spare VR headset lying around the house, you can build good habits by playing your young one’s favourite games or activities when they reach a savings goal. However, don’t hand out too much; saving should eventually be the reward.
Don’t underestimate your impact
A 2014 report by Oxford University and BNY Mellon found that 52% of millennials rate their parents as the most trustworthy source of financial advice. Be clear and confident with your kids, because sooner or later they will be practising what you’ve taught them.
Parental instincts might urge you to cocoon your child from the world of financial planning (we want kids to enjoy their innocence just as much as you do). But keep in mind the fact that few things will be as damaging to your child’s future as teaching them bad habits or simply paying their way for them.
P.S. If you ever want to see them own a house in Australia, do NOT let them know about smashed avocado on toast!