My top tip to teach kids about money: make it hurt

When it comes to managing money, there are two main types of people: those for whom it flows swiftly out of their hands, and those who are strategic. Think about it.

Teaching and shaping your kids into adults who are the latter – who deploy money strategically – will change their lives. It will also equip them to be able to, one day, afford to move out … but more on that in a bit.

Shaping your children into adults who deploy money strategically will change their lives.Credit: Aresna Villanueva

Well, I believe the key is creating pain in the game. And closely associated is enjoying the greater, gratifying ‘wins’.

When you let money flow virtually straight through your hands, there is no pain. There is also no decent pay-off – there’s never anything left for anything bigger or better.

When you are instead strategic about the allocation of your always-finite financial resources, there is interim pain, but ultimate pay-off. For your child, they get to experience – under their own financial steam – a fabulous schoolies trip, their first car, a gap year overseas, progress towards a property deposit. But I will get back to that last one, too.

Of course, the underpinning concept of ‘pain in the game’ is delaying gratification. And that ability – which can be taught if it is not hard-wired in your progeny (or you!) – is promotive of success in many aspects of life: health and fitness, study for a career, success in that career. In fact, in targeting any goal, financial or other.

It sounds harsh, but it’s all a tremendous exercise in assiduous money allocation – and a little pain for a lot of pay-off.

Someone for whom things have always come easy is never going to have the mindset to put themselves through a bit of discomfort, let alone the proper, self-imposed hard stuff. So, what does financial pain in the game look like in practice for your kids?

Firstly, a non-negotiable template from the get-go for all money that enters their hands … to prevent it from ever just flowing through their fingertips (remember, they don’t have our expenses just yet).

I use the “fritter, fun and future” money split below:

• 10 per cent for future you – long-term savings
• 40 per cent for fun stuff – medium-term savings
• 50 per cent for frittering – short-term living and playing.

Secondly, those medium- and long-term buckets of funds need to be for specific and terrific goals, targets so sweet they can almost taste them: schoolies, travel or that car.

Which brings me to the possibility of your children eventually moving out and having a potential property deposit. To supplement all the pain in the game, if you can afford it, help them – every now and again – secure the win (provided they deserve it).

Preferably, sometimes, unexpectedly. Remember, it’s human nature to value more highly what you work and strive for.

I call this money-smarts teaching technique powered-up pain in the game – and it’s all about the power of two.

As your kids progress through their teenage years, you could occasionally offer to meet them halfway. If they are diligently squirrelling money away in the magic money ratio of 10:40:50, offer to match their savings for something every now and again.

And watch their financial focus become laser sharp as the pay-off doubles. Then, if they are still living at home when they are older and their learning has given way to earning, charge them board.

I advocate a 50 per cent discount on what it would cost them in a market rental … and, vitally, encouraging them to save the amount they save under the arrangement to capitalise on a free kick that could kick their future into overdrive.

It sounds harsh, but it’s all a tremendous exercise in assiduous money allocation – and a little pain for a lot of pay-off.

If you can do without their money to cover your household costs, consider keeping their board money in reserve for them and returning it down the track for a doubled, say, property deposit.

Pain before a big, bonus pay-off … or powered-up pain in the game.

So, yes, my top tip when it comes to teaching kids about money is to always make it hurt along the way. Because in the immortal, slightly amended words of singer John Cougar Mellencamp: hurt’s so good.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter or Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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