Setting kids a good financial example

ONE of the biggest barriers preventing children from learning good financial skills is their parents, according to research.

Kid writing on blackboard /File

Setting kids a good financial example

ONE of the biggest barriers preventing children from learning good financial skills is their parents, according to research.

"Generation Y has noticed mum and dad struggling with credit card debt and they have noticed that mum and dad don't do a budget," Financial Literacy Foundation Advisory Board chairman Paul Clitheroe says.

BankSA general manager Chris Ward says any savings lessons quickly fall on deaf ears if children see parents spending up big on credit and then struggling to meet repayments.

"The fact is, if parents are teaching their children to save to buy that must-have toy, then they should be saving to buy that must-have plasma TV."

Pocket money

Whether it's awarded as payment for chores or with no strings attached, Nanny SA managing director Tanya Cole says pocket money enables children to learn how to save and gives them a sense of independence. It also demonstrates the importance of good money management.

"Keep in mind that losing money is part of the lesson most children go through in order to be more careful in the future," says Commonwealth Bank group executive retail banking services Ross McEwan.

Charge board

Paying board has become less popular but it can be a powerful education tool once an older child starts earning a wage while still living at home.

Parents have the option of putting board money aside for a house deposit when the child is ready to buy their own home.

Talk about it

Money can often be a taboo subject when mixing socially but it should not be that way in the home. Mr McEwan says it is important to talk about money with your child.

"Children often see adults spending money but the part they don't see is when monthly bills are paid off," he says.

"It helps to sit children down when you are doing your financial chores and show them what bills are being paid and how much they cost."

Set goals

Children should be encouraged to think long term, Mr McEwan says. "This will motivate them to see the bigger picture."

Goal-setting is a key financial tool for adults too. Small sacrifices can deliver big results over the long term.

Starting a child's investment with the $4000 maternity payment and adding $20 a week will grow it to more than $75,000 by the time they are 18. This assumes annual investment growth of 10 per cent.

Go shopping

Mr McEwan says children should be involved in identifying grocery items and how much things cost.

"Children can get very excited when they see something they really want. We've all seen a child throwing a tantrum at the supermarket.

"Talk to your child and explain that if they really want something, they will have to wait. Put a time frame on it – for example two weeks. This teaches your child to think properly before making a purchase. Once the child has set their heart on something, teach them how to shop around to find the best price."

Make it fun

Whether it's family games of Monopoly or setting up a star chart system for financial rewards, money does not have to be boring.

For younger children books such as Alexander, Who Used to be Rich Last Sunday (Aladdin Publishing) can also be a fun way for them to learn by example.

Choose wisely

National Australia Bank state general manager retail banking Ann-Marie Chamberlain says opening an account for a child could be a great motivational tool but it pays for parents to shop around.

"Ideally, you should look for a children's account which has no transaction or account-keeping fees and, at the same time, pays reasonable interest," she says.

"Some children's bank accounts reward children with bonus interest if they make at least one deposit and no withdrawals in a month.

"This is to encourage savings and to help children develop good financial habits."