Teaching your children that money stays in the pocket
An article by ASIC Chairman Jeffrey Lucy published in The Daily Telegraph, October 2006.
Note: The world has changed since 2006, and so has the way we use money. For more current information on this topic, see Moneysmart's advice on teaching kids about money.
Money matters to people of every age, at every stage of life. For today's teenagers, often labelled the 'I want it now' generation, it has never been more important. As a father of two daughters, I believe that it's never too early for children to learn about the value of money and, more importantly, how to avoid getting into unmanageable debt.
A recent study conducted for the Commonwealth Bank found that 73% of Generation Y (18-24 year olds) have some form of debt, and 57% of those are not concerned about the debt they are in.* And with the newest generation, Generation Z who are now at the age where they'll be starting to earn pocket money and exposed to credit, it really is crucial that parents raise their children's awareness about the basics of money management.
Children need to understand that money is a limited resource and does not simply materialise from holes in the wall or by swiping a credit card. Parents cannot really be expected to provide a financial safety net in all situations. These days, children are under enormous pressure to have the 'right stuff' - from mobile phones and iPods to sneakers and designer clothes. Their desire for these items presents parents with an ideal opportunity to encourage and assist their kids to plan budgets and manage their finances carefully and to also understand the implications of debt.
Financial literacy skills should be at the forefront of knowledge for the next generation of consumers so that needs and wants are closely monitored and savings plans made and adhered to.
I believe it starts in our own homes.
Many young people learn their money habits from their parents, so it can really help to teach children good financial skills and discipline early on in life. I encourage parents to get children involved in the family finances by talking openly about money and discussing family financial decisions.
Encouraging our children to think about responsible saving and spending is the first step, and will hopefully stop Generation Z becoming Generation Debt.
Here are some suggestions on ways you can help your kids learn about money:
- Encourage them to think about what they want, what they need, and to identify their savings goals
- Help them decide what they really want, and to focus on their most important goals
- Remind them to regularly set aside a specific amount of their pocket money towards the items they are saving for
- Help them to control impulse buying by reminding them of their savings goals when they get tempted to buy things that aren't on the list
- Encourage them to put loose change into a savings jar at the end of each day and to use this little pot of cash to cover small personal expenses
- Tell them about lay-by and encourage them to use this as an alternative to credit
- Use pre-paid cards for your children's mobile phones and make your kids top up the card themselves if they spend them too fast.