What your kids want to know about money

Every parent knows children can ask the most disarming questions which can leave you laughing, crying, embarrassed, angry, squirming… or all four at once.

Whether it’s questions around looks, sex, death or money, children don’t have a filter in their enquiring minds. But your first response can often set the tone for an answer which can have a huge impact on your child’s future opinions and behaviours on the subject.

With four grown up children and 5 grandchildren, we’ve been bombarded with an enormous range of questions about life and money. So how do you answer those tricky financial questions when they come up.

Rather than stumble around thinking about what to say to a confronting question, we always had a universal first response… “why do you ask?”

Not only did it buy us time to think through our response, the answer would put into context why the question was being asked. Often a parent’s brain is so conditioned to answering questions from adults that we tend to over complicate our response when a child’s reason for asking can be very innocent and simple.

In the past any discussion about money with children was seen as grubby, one of those taboo topics never to be discussed. It produced young adults ill prepared in simple matters of money management which often led to some very expensive mistakes.

Our fear is that the pendulum may have now swung to the other extreme where children are too exposed to the strains of the family finances with the risk that they will grow up to fear money and making mistakes. So, like everything, it’s a balance between sharing too much about your finances and satisfying an enquiring mind which will also absorb healthy financial habits. Naturally how much you reveal to children depends on their age.

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Q; Are we rich? A; Tell me what rich means to you?

A child’s idea of rich can be quite different to ours. To them it is mostly about size and material objects. A big house, a flash car, a swimming pool, can be seen as a sign of being rich.

There is no need to give a definite yes or no answer. Explain that you have enough money for a house, clothes and food. Then steer the conversation toward the theme that being rich isn’t as important as other qualities such as being kind to others, being polite and being healthy.

Q; How much money do you make? A: Enough to care for you and the family.

The number really isn’t important to a child because they will have no idea of the context. Remember their benchmark will be their pocket money.

But your answer is a great excuse to explain how you need to earn income to pay for the expenses of the family.

Show them what their pocket money would buy and then go through your weekly household budget (at an age appropriate level of detail) to give an idea of what else needs be paid. Explain you need to earn enough to pay for all these expenses and have a bit left over for things like holidays and eating out.

If they start to get bored then you know they aren’t quite ready for the full financial field trip. But if they’re still intrigued then go further.

The first time we took our kids through our supermarket bill and compared it to their pocket money brought gasps of astonishment. It showed day-to-day items, which are often taken for granted, do have a value and shouldn’t be wasted.

We would also break down the cost of an item into how many hours they’d have to work at McDonalds (all our kids had part time jobs at McDonalds) to pay for it. The message really sank in.

Drag them along shopping and show that consumers have choices. That big brand names are often more expensive but not necessarily better. That supermarket prices are usually more expensive at eye level on a shelf than above or below. Take them shopping and treat it like a field trip and pass on your canny shopping tips.

For older children go through your on-line banking and explain what a financial institution does, the concept of earning interest and the difference between the range of accounts. The same with the credit card statement. Explain that bit of plastic isn’t a money tree and it has to be paid back, often with interest. Whip out the debit card and explain the difference.

Q: Why does my friend live in a bigger house than we do? A: I don’t know, but why is that important?

Always admit the obvious… that other people do have bigger houses… and that it’s okay to be different. Explain people think differently, like different things and have different priorities.

They may like a big house instead of going on holidays or eating out. Or they have been given the money to buy a large house or borrowed more to own it.

Some people choose jobs to earn more money to buy a big house while others choose a job which makes them happy rather than get paid a lot.

Explain you have a job which makes you happy and can pay for a house like what you have now.

Q: Why can’t you have a job that makes more money, so we can buy more things and go on holidayA: This is the job I love and you wouldn’t want me to do a job that made me grumpy and unhappy?

This is one of those questions which can rip your ego to shreds and make you feel incredibly inadequate. While the question feels aggressive don’t answer it that way.

It’s a perfectly normal question for a child to make in an ever increasingly materialistic world.

It’s a chance to explain your family priorities which aren’t all centered around money and material possessions. It’s about love, being a family and enjoying the simple things in life.

Go through your values and how you set financial goals. Explain that you cant have everything and sacrifices have to be made to pay for things like holidays. Remember when everyone’s having a good time on vacation, remind them of the little sacrifices which had to be made to get them there and it’s worth it.


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Why YOU should be teaching your kids about money

Parents, you need to start a financial bootcamp for your kids. 

Why? The latest OECD survey on teenage financial literacy has found Australian standards have fallen since 2012… and 20 per cent of teenagers are below the minimum standard of knowledge. But before we start pointing the finger at schools, we should be point fingers at ourselves.

Numerous research shows teenagers learn virtually all of their financial knowledge by observing their parents. Think about it, and your money behaviours? It’s a bit scary the kids are watching you that closely.

It’s always a fine line between including children in so-called “adult decisions” to help with their personal growth and protecting them to enjoy a stress free childhood.

Household finances are a classic example. In the past any discussion about money was seen as grubby, one of those taboo topics never to be discussed. It produced teenagers and young adults ill prepared in simple matters of money management which often led to some very expensive mistakes.

The key is coming up with a constructive middle ground…. Remembering you are the best financial tutor for your children. Here are our tips on what to share… and what not to.

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WHAT TO SHARE


✔ Financial goals

It’s great to let children see that you’re saving for something which benefits the whole family. It could be buying a car, saving for a family holiday or even new clothes.

It’s a great life message that you can’t have everything you want without a bit of planning and a little sacrifice. When the goal is achieved and you’re sitting under a palm tree sipping a cocktail, remind the kids what it took to get there and wasn’t it worth the planning.

Paying bills

We always laugh at the outrage from our adult children when they read their first payslip and saw the amount of tax taken out. All of a sudden they realise who pays for the roads, schools and hospitals.

Likewise, the first time we took them through our supermarket bill and compared it to their pocket money. It shows that day-to-day items, which are often taken for granted, do have a value and shouldn’t be wasted.

We would also break down the cost of an item into how many hours they’d have to work at McDonalds (all our kids had part time jobs at McDonalds) to pay for it. The message really sank in.

Making good consumer choices

Drag them along shopping and show that consumers have choices. That big brand names are often more expensive but not necessarily better. That supermarket prices are usually more expensive at eye level on a shelf than above or below.

Take them shopping and treat it like a field trip and pass on your canny shopping tips.

✔ Everyday financial experiences

Go through your on-line banking with the children and explain what a financial institution does, the concept of earning interest and the difference between the range of accounts.

The same with the credit card statement. Explain that bit of plastic isn’t a money tree and it has to be paid back, often with interest. Whip out the debt card and explain the difference.

Charitable donations

We would always talk about making donations (not the amount but the organisations) because we wanted to show that everyone has a responsibility to help others in the community. We also insisted they donate a percentage of their pocket money to a charity of their choice.


WHAT NOT TO SHARE


✘ How much you earn

All a child wants to know is that you’re able to look after them. They want that security.

Dollar amounts are often confusing and they have no concept of the extent of what that figure needs to cover. So it’s better to avoid a figure and just say “enough to make sure we’re okay”.

✘ Level of debt

A 25 year home loan is a scary prospect for any aged child… 12 months is a long way off. So explain the concept of debt and how to use it properly to acquire things which hopefully appreciate in value. But avoid talking numbers or whinging about how long it will take to pay off.

✘ Investments

We think it makes sense to wait until children are late teenagers studying business or economics at high school or show an interest in investing. It’s confusing enough for adults.

When you do share, there’s no need to talk about dollar amounts, but talk about why you bought some of your shares and what moves prices. Relate shares to companies and brands that children use everyday like retailers, clothing or technology brands.

Then move on to explaining other investments and how they operate. Show them your superannuation statement and where the money is invested.

✘ Wills and life insurance

Most children hate the thought of being alone, of losing mum or dad. So don’t even attempt to explain wills or life insurance until they’re old enough to cope emotionally with the prospect.

5 rules for how to pay pocket money

When it comes to pocket money, it’s not the amount which is important but the way it is used which teaches kids money lessons they will keep forever.

We followed these rules for own children and now we implement them for our grandchildren … thankfully their parents are strong advocates as well.

So here are five pocket money rules you can put in place today to begin training your kids in money management.

 

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1. They must have a savings plan

For each of our kids, getting their pocket money was contingent on having a plan about what they were going to do with it.

Our rules were always the same … save 50 per cent and spend 40 per cent (don’t worry about our maths, we’ll get to what we did with the last 10 per cent soon).

The key is to agree with them on what to save for … saving for nothing is boring. We would sit down with our kids and dream together … a new doll, skateboard, footy etc.

Then we’d work out how long it would take to fulfil their dream and draw a little bar chart so they could see the tally rising each time they received their pocket money. We’d make a game of it. Make it fun and make a big deal of it when they reached their goal.

2. Teach them how to budget

One of the best ways to teach kids how to budget is to pay pocket money monthly rather than weekly … particularly teenagers.

That’s four and a bit weeks on average your kids will have to prioritise, improvise, scrimp and save to get by. A great introduction to the pressures they’ll face once they swap the family home for the real world.

Just remember not to cave in if they blow their budget early. A week without tuck shop won’t hurt them and they won’t forget it. But paying them extra can undo many of the lessons you’re trying to teach.

3. Show them the value of money

Yes, that means that they need to work to be eligible for their pocket money.

For us this didn’t mean “family” jobs like cleaning up their room or a mess they’ve made (which should be done for free for the privilege of being in a family), but jobs which saved us time like folding washing or unpacking the dishwasher.

If they don’t finish their jobs, they don’t get paid until they do. Just like in real life. It’s a great lesson reinforcing you don’t ever get something for nothing.

4. Encourage a part time job… as soon as they’re old enough

Jobs at home are great for younger kids, but there’s no substitute for the real thing.

So at 14 years and 9 months all four of our kids were shipped off to the local McDonalds. Whether you like the food or not doesn’t really matter, it is a wonderful training ground to learn customer service the process of work.

Not only was it a structured and positive introduction to working, it was great for them to meet other kids in the local area. And it was always interesting to see their reaction to their first pay slip, when they worked out how much of their hard earned cash went to tax!

5. Give them a sense of community

We said we’d get back to what we did with the final 10 per cent of our kids’ pocket money … for us it was used to give them a sense of community.

One tenth of their pocket money was saved up and donated to a charity of their choosing … and we matched it dollar for dollar.

We know they felt empowered by this simple gesture, and learnt important lessons about social responsibility.

As you can see, pocket money is the perfect way to start your kids’ financial education and life skills. Use it wisely, set ground rules and join them on their financial journey … you’ll see the rewards once they’re all grown up.

The pros and cons of the bank of mum and dad

With sky-high property prices in capital cities across the country, the pressure on parents to shell out for their kids to buy a house is also on the rise.

Now, we understand the appeal of giving your kids a financial leg up onto the property ladder, but we don’t always recommend it.

When it comes to buying a house, our belief is our adult kids are big enough and ugly enough to look after themselves.

We don’t think it’s selfish to prioritise your retirement over boosting your kids onto the property ladder… after a lifetime of hard work you’ve certainly earned it.

If you do go down this road, here are five ways that you can help your kids get what they want without sacrificing your own retirement goals.

 

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1. Educate them


Teaching your kids about money should be a priority, particularly when they’re young.

Instilling good saving habits early on is the best financial gift you can give them, and they’ll thank you when the time comes to start saving for a deposit.

Pocket money is a great way to teach your kids valuable lessons about saving and the value of money. Give them incentive by matching their savings dollar-for-dollar when getting them started and encourage them to set financial goals.

2. Put up a family guarantee


This tactic means you’ll be putting the equity in your house up as security for theirs, so it might not be a comfortable solution for many.

Financial planner and director of Financial Spectrum, Brenton Tong, says that solid rules must be put in place to reduce the risk if you choose adopt this approach.

“E.g. As soon as their debt has been reduced and their property has gained sufficient value, they have to refinance you out.  If they fall behind in repayments, they have to sell rather than tapping you for more money,” he says.

3. Buy with them


This option can either make or break your relationship with your child, so tread carefully when considering it.

Brenton says if you’re going to do it, it mustn’t be because they want a pricier property, “they need to learn to compromise and live within their means”.

Ideally, you should help them with the deposit only, that way you won’t get stuck with mortgage repayments if things go pear-shaped, your child will be on the property ladder and over time, you’ll both walk away with equity when the property value increases.

4. Lend them money through a third party


Unless you’re willing to part with the money for good, it’s best not to lend them money privately. To avoid putting a strain on your relationship, have a third party administer the loan on your behalf.

This puts clear rules in place for repayments and takes the pressure off you both. As Brenton says, “safer for you, safer for your relationship.”

5. Tell them to toughen up


A controversial alternative for some, but one we stand by – tell your kids that they have to suck it up and go it on their own.

It’s never been easier to borrow money in today’s economy and interest rates are at record lows. As parents, we paid 17 percent interest, went without the flashy cars or gadgets and put overseas travel to the side until we built a stable financial foundation for ourselves.

And there are plenty of millennials doing it the same way… it can be done.

“Sometimes, making sure your kids know there isn’t any help coming can be the greatest help,” says Brenton.

We believe a good financial education can be just as effective as shelling out cash when it comes to giving your children what they want. It’s also much less risky.

5 Simple Ways New Parents Can Better Mange Money

Ah, the joys of having young kids. Sleep? Forget it. Dirty nappies? Get used to it. And as for having any money left over at the end of the month… well, hats off if you can manage it.

We remember having the same cane chairs for all of our kids’ first steps, which was just part of trying to support a family on a cadet journalist’s wage.

Of course, despite all of the sacrifices, kids still bring you more joy than you ever thought possible.

And trust us, after raising four of our own we can safely say you will get through it. So with the benefit of hindsight, we’d like to share five smart financial steps to take when you first have kids.

1. Budget for a more modest lifestyle


You probably don’t need to be told that your free and easy weekends are over for the time being, but that doesn’t mean you have to be home-bound all the time.

Spend some time making a budget that factors in your new family’s everyday expenses and household essentials, which will involve adjustments to your old lifestyle. This can be a bit of a shock, but will ensure you recognise any shortfalls before they become big problems.

Then see how you can arrange social and family engagements around a tighter budget, because mental health is just as important as financial health in a young family.

2. Review your insurances


While it may seem like an unnecessary expense, insurance protects you and your loved ones financially if something goes wrong.

So go through your insurance policies, including any held within your super, and ensure there is adequate life, income protection, trauma, health and home insurance to protect your family if anything happens.

As a general rule, you need enough insurance to support your dependents, cover debts and provide for ongoing care if you die or become incapacitated.

3. Get your estate in order


Updating your will is crucial when you become a parent, or if you don’t have one, then it’s the perfect time to tick it off your to do list.

One of the major decisions is naming a guardian for your child, but it also involves dictating where your assets will pass in the event of your death and naming an executor to administer the will.

While it’s possible to buy ‘do it yourself’ will kits, professional help will ensure that your will is legally binding and your wishes will be carried out as intended.

4. Build an emergency fund


Setting up your will and adequate insurances are both essential to guard against big, unexpected events. However, it’s also important to be prepared for the smaller financial headaches that life throws up too.

So start setting aside some money in an emergency fund. This is money that can be easily accessed in a financial emergency, like your car breaking down, an expected health bill or career change.

Ideally this will be six months’ worth of living expenses to cover your bases, but whatever you have now, the most important things is to start adding to it today.

5. Set up a savings account


Setting your kids up with the opportunities you want them to have starts the day they are born. And there’s no bigger help in funding their future education, sporting or social pursuits than compound interest.

So try to factor a small deposit into your family budget that goes into an account for your kids to access later.

Ticking this over will quickly add up. Say you start with $500 and add $20 a week, at an average interest rate of 4 per cent, it will grow to $28,300 by the time they turn 18.

If you’re starting a new family, spend some time making these financial changes to put your family in the best position for a bright future.