How to talk to your children about money

Who remembers receiving $20 in a Christmas card from a relative? Or maybe it was $5 or $10, depending on how far back we’re talking.

And whether you’d already spent it in the time it takes to receive an extra-long hug from THAT Aunty, or you’d deposited it straight into your savings account with THAT bank, or you’d invested it into your latest and greatest money-making venture – there’s a good chance that those same money habits are with you today. 

If you’re thinking about gifting some cold, hard cash to the little ones in your life, then have a think about how you can help them develop a good relationship with money, because as we all know: old habits die hard.

Giving cash is probably more useful than ever in today’s increasingly cashless society, because it gives kids a more tangible insight into how money works.

Here are five ways to help children think about money:

Note: We’re not saying there’s a right or wrong way when it comes to someone’s money mindset, but we’re big believers that knowledge is power.

1. Money jars

Tell them about the money jar concept, where they’d portion out their money into key categories: save, spend, invest, donate, and then have to decide upfront how much they want to devote to each. Using physical jars helps kids understand an otherwise abstract idea. When they’re making decisions about where to send their money, they can see that they’ve only got their allocated funds to work with, and so it helps them learn to be more disciplined and purposeful with their decision-making.

2. Opportunity cost

Talk about opportunity cost, so when they’re deciding on whether to buy something, highlight what they’d be missing out on. Little Ryan wants to go on that $20 ride again? Remind him he won’t have money left to buy the showbag. Sounds a bit like being Fun Police, doesn’t it? But before long they’ll be pre-empting you and considering the opportunity cost before you’ve had a chance to prompt them.

3. Compound interest

Talk about the difference between good debt (debt that allows you to invest in wealth-building channels like property), and bad debt (debt that costs you). For example, if they ask for a $50 loan, charge them (a nominal amount of) interest. Get them thinking about whether they want to pay compound interest, or earn it.

4. Radical transparency

If you’re living a comfortable life, kids can get the impression that money grows on trees, right? Think about letting your kids know how much money you earn, and what’s involved (i.e. the long hours, years of education and training). Of course, you may want to tell them not to bring it up at Christmas lunch – we’re not necessarily suggesting you become that transparent!

5. Invest in shares

Setting up a very modest portfolio can be an incredible way to introduce children to the concept of trading shares. With the various apps around these days, the barriers to entry are not what they once were, and trading shares certainly isn’t just for trust fund babies. Make sure you speak to your accountant and/or financial adviser for guidance around the capital gains benefits. 

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