Finance tips: how to turn teens into money-making machines

There’s no uniform financial training in school curriculums, so it’s up to parents and grandparents to take up the slack. Here’s how.

It’s taken more than a dozen years closely watching Australia’s education system for me to see some good money lessons in a school curriculum.

My daughter starts Year 12 soon and will study topics such as saving money through regular deposits, borrowing costs and interest rates, selecting investments, compound interest and superannuation.

It’s part of her general mathematics subject, and much more relevant to her future – I believe – than the calculus, trigonometry and vectors she’s been studying in maths until now.

And it’s the first serious financial literacy stuff I’ve seen at school, apart from a short lesson I helped with during junior primary that used marshmallows to show the value of patience and delayed gratification.

Some students get zero money training. Many Year 12s students taking advanced maths classes this year will instead be focusing on logarithmic functions and random variables, so some future engineers and doctors won’t know how a home loan works.

Unless their parents, or grandparents, help them learn.

Barefoot Investor Scott Pape has been working to teach money skills in classrooms and bring financial literacy into school curriculums, and has so far had 125,000 people sign his petition to state governments.

He’s called for annual money challenges for school students, high school students being shown how to save and get a job, professional development and financial education for teachers, and no banks in schools.

Teaching teens about money may help plug some of the financial problems that plague adults.

Recent research by financial comparison website Choosi found most people don’t understand how buy now, pay later schemes work, while two-thirds don’t know how credit scores affect their future finances.

Many student will finish school with little or no financial education. Picture: iStock

Financial literacy specialist Whitley Bradford from Griffith University says evidence suggests that many Australians have big gaps in their financial knowledge.

“There is a lot of work to be done within Australia to increase both financial literacy and financial capability,” Bradford says.

It’s best to begin building serious money skills during teenage years, and here are a few ideas for parents and grandparents to help with their training.

COMPOUND INTEREST: The most powerful tool in the world of finance is compounding returns, and there are free calculators online – including at moneysmart.gov.au – that can be used to show how small savings can multiply into huge sums.

WORKING FOR CASH: Whether it’s pocket money for chores or a part-time job, teaching teens the value of working for income is important – and they’re more likely to be careful about spending money they put effort into earning.

THE 10 PER CENT RULE: Setting aside 10 per cent of any income earned to invest in the future is a brilliant habit to begin early. It can be done easily with a monthly direct debit into a separate account, or just a jar at home.

CREDIT CONTROL: Whether it’s buy now, pay later schemes, credit cards or store cards, one of the biggest financial traps for young adults is buying things with money they haven’t yet earned. Explain how high interest rates on consumer credit options eat into their money and can easily slam their finances into reverse.

START INVESTING: It’s easier than ever to start investing, with an inexpensive online investment platforms multiplying in recent years and allowing newcomers to own stakes in Aussies shares, property and the global companies they use daily such as Apple, Microsoft and Netflix. Consider exchange traded funds (ETFs), which invest in an entire share index rather than just one company and provide instant diversification.

PUT PROPERTY ON THEIR MINDS: Soaring house prices make buying real estate seem harder than ever, but the Bank of Mum and Dad has important role to play. An early start to saving for a house will pay off handsomely, so explain the benefits of owning and investing rather than renting. Parents who pump $3 a day into savings and ETFs after their child is born will produce tens of thousands of dollars by age 18 that could help cover a house deposit.

SUPER STRATEGIES: Putting money into superannuation might be a hard sell for people who are not allowed to access this money for many decades. But some incentives – such as the $500 co-contribution scheme for low-income earners – work wonderfully well for working teenagers, and they’ll thank you for it later on.

TAX TWEAKS: Most young people won’t earn enough income from part-time work to pay tax, but it’s wise to let them know just how the tax system works. And explain the benefits of investment tax incentives such as negative gearing, work related-expenses and tax deductions for super contributions, and how to be careful and clever when it comes to capital gains tax.

WRITE A WISH LIST: Having written financial goals gives you something to aim for. It might be a holiday, a car or – better still – a first home or investment property. Revisit the list every few months to measure progress towards the goals.