They say monkey see, monkey do and kids are just the same.
Teaching your kids about money smarts may sound easier said than done, but it starts by setting a good example.
These tips aren’t just for kids, but are a good way to get them kickstarted on their savings goals, teaching them the true value of money and how to best manage it.
How parents can teach their kids to manage money
Avoid making impulse purchases yourself
Most children learn from real-life experiences. If they make an impulse buy you could explain how they could have gotten more for their money or what else they could have spent their money on.
Michelle Bowes, author of Money Queens, a personal finance guidebook for teenage girls uses the example of wanting to replace a mobile when a new one is released.
She says that “instead of a vague goal like ‘I want to save to buy an iPhone’, a better savings goal would be ‘I want to save to buy a new iPhone SE by December 2023. It will cost $429 so I will need to save $28.60 each month to afford it.’”
This tip goes hand-in-hand with another one she notes in her book…
Understand needs vs wants
Do you need the new iPhone, or do you just want it?
In Bowes’ book, she notes the importance of making sure your kids know the difference between a need and a want.
Not every “They might be cool but they’re not actually essential to your survival!”
While a mobile phone may not be an issue of life or death, consider whether you can wait a few more months or years before replacing it. Is it broken? Is the battery life poor? Then it may be time to replace it. But if you just want something shiny and new, it may be better to continue saving that money.
Setting savings goals
Even if they’re only small ones, goals can be a good way to reduce impulse purchases.
“Saving money is much easier if you have a system for it,” says Bowes. Using smaller goals instead of one big one can also make things less daunting.
She adds that to encourage kids to save you need to explain why it’s important and to set clear goals.
In her book, she uses the example of saving for a car as a savings goal. If you’re budgeting $4,500 for a used car and you’d like to buy it in three years, you can break it down into smaller, monthly goals. That’s a savings of just $125 per month. (Which can grow even more in a high-interest savings account!)
Set up a bank account just for them
Kids should have a place where they can deposit their savings, recommends Bowes. A separate savings account linked to their parents’ account makes it easy for online transfers and deposits.
For younger kids, a piggy bank can work wonders too.
Banks offer special accounts for kids too, and they do come with savings incentives.
NAB Rewards Saver accounts allows children to earn up to 1.75% interest on their savings, as long as they make at least one deposit per month and don’t withdraw.
Commonwealth Bank’s YouthSaver account will reward savvy savers with up to a 1.7% interest rate on their savings as long as it’s growing.
You could also open an ANZ Progress Saver account. This option for under-18s offers up to 1.65% interest if you deposit at least $10 a month and don’t make any withdrawals – a great incentive to save!
Incentivise your kids’ saving with financial rewards
Just as adults can earn interest on their savings, kids also respond to incentives.
Ms Bowes says: “If your child is a reluctant saver you can incentivise them to save by offering financial rewards, such as matching the amount they save, or topping up their savings when they hit certain milestones.
“For example, using the iPhone scenario from earlier, perhaps you could offer to match their savings and pay for half so that they only need to save 50% of the cost, or boost their savings by contributing $10 every time they save $50 toward their goal.”
Ultimately the best way to save is to make it a habit. Ms Bowes suggests helping your kids decide what proportion of their pocket money they’ll save. It could be 30, 40 or 50 per cent.
“If they get used to saving a proportion of their income from a young age it will become a habit and it will be much easier for them to save money as an adult.”
Make them work for it
Whether it’s household chores in exchange for extra cash, hosting a lemonade stand or getting their first job in their early teens, encouraging your kids to work in exchange for money can really teach them the value of each dollar.
Teach them about how credit cards and buy now pay later companies work
Commercials and advertisements can make it seem like credit cards and buy now, pay later programs are too good to be true. And, in a way, they can be.
While you need to be 18 to use either, make sure by the time they are eligible, they understand how they work.
The details about how minimum payments work, how interest is calculated and the importance of paying your bills on time can be crucial if they want to keep their savings goals on track.
Do you have more top tips for teaching kids about savings?
We’re giving away three copies of Michelle Bowes’ book Money Queens to the readers who submit their best savings tips for kids.
Use the form below to tell us your best tip and your email address so we can let you know if you’ve won!
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