Bill Murray, the actor, once said “the best way to teach kids about taxes is to eat 30% of their ice cream”. A tad harsh, but he kind of has a point.
All parents want their children’s lives to be as easy as possible, but there’s only so long that most can support the financial needs of their children and the time to cut the purse strings will eventually come. If we haven’t taught our kids by that stage how the real world works then they could be in for a very rude shock.
This is why I believe it is so important to instil financial values in children from an early age until they become adults in their own right. When the time comes for them to stand on their own two feet they will be well equipped to transition into a life of independence.
The best way to teach kids about taxes is to eat 30% of their ice cream.
I happen to be lucky enough to have some very financially savvy friends who are also ace parents, and who were more than happy to share their tips on how they taught their children the value of money. A collection of the best is below. Taxing ice cream wasn’t among them, but there are still plenty of other great ideas in this lot.
Tips for pre-schoolers
The general consensus among the people I spoke to was that it is never too young to start and that this a good age to introduce the concept of money and exchange for goods and services.
- Start off by playing a game to identify different notes and coins. Recognising each piece of tender is the easy part, understanding what it is worth is more difficult. Australian coins are not like some other countries’, that get bigger the more they are worth. Nope, that would be too easy. In Australia, a two dollar coin is smaller than a twenty cent piece. That must be very confusing for a young mind. This is where playing shop can help.
- Playing shop keeper will introduce the notion of exchanging money for goods and services, and how different coins and notes will buy you different things. Use the more valuable notes to pretend to purchase bigger items, and the smaller coins for smaller purchases.
- Another great tip is to give your child the task of handing money to the cashier and accepting the change when you are at the shops. This will not only reinforce the concept of exchange but will also make them feel super important!
Tips for school age
This is a good age to introduce the concepts of earning, saving, spending, philanthropy and opportunity cost.
- Once your little one gets the idea of money and exchange it could be time to start introducing pocket money. There’s no hard and fast rule when to do this, just make sure they’ve got a grip on the concepts mentioned earlier. First up, how much to give them? This is entirely up to you, but work within your means and your budget. I know one family who gives their nine year old $7 per week (a dollar a day) and another who gives theirs $20. There’s no right or wrong amount. Next, think about whether they will earn this money or it will be given to them. Working for chores can open up debate about the value of different tasks – some families would simply rather avoid any arguments. But if you do decide your kids should earn their pocket money, some good task suggestions are raking up leaves, cleaning the car, keeping their room tidy and helping with the washing up. You could also incentivise with a bonus if your child performs a task really well. Different families do different things … just do whatever works best for yours.
- Teach your child about making a choice between spending and saving. To save for something they really want, help them set a savings goal. Help them distinguish spontaneous purchases from things they need. This introduces the concept of opportunity cost. Once your child has got the hang of it, think about making the frequency of their pocket money payment fortnightly then monthly to help them learn to budget and make their money last the period.
- Define what the pocket money should cover. For example, if your child receives pocket money of $10 a week, they might want $5 for spending money, $4 to go automatically into savings and $1 to a charity. This is a great time to introduce philanthropic giving to youngsters, so that they understand they can help people less fortunate than themselves.
- The appropriateness of school banking programs like Commonwealth Bank’s Dollarmites program is debatable. Underneath it all, these programs are marketing ploys for the banks but they can help with children’s financial literacy. If your school does not participate in a school banking program, take them to the bank and open an account for them.
- Board games like the Game of Life and Monopoly are awesome for teaching kids about making and losing money. Card games can even show them the consequences of gambling.
Introduce the more complex concepts of borrowing, lending, taxation and superannuation once your kids enter their teens.
- If your teen’s money runs out, try not to just give it to them. This is easier said than done, I know, but it is important to stand firm so they don’t look at you as though you are a perpetual money tree. If you can withstand all the whining when their money runs out, they may start thinking about ways to earn it themselves. I know one very enterprising teen who wanted more pocket money than his parents would give him, so he set up a neighbourhood a car washing business. He handed out some flyers in his cul de sac, which led to one client who he charged 5 dollars. He did a great job, and before he knew it through word of mouth, three other neighbours others wanted the service.
- And what about starting work? I would say it’s best to do this as early as possible. I’m going from my own personal experience here. My parents actually discouraged me from working as a teen because they felt it would be a distraction from my studies. This meant I was an adult before I had my first job. When I finally entered the workforce years behind my peers I found I had missed out on crucial learnings; I really had no idea how taxes worked or what superannuation was. And this had a real effect on my confidence. I would therefore recommend encouraging your child to find a part-time job whilst studying, whether it be in retail or at a fast food chain, just to get them used to working. The age you can start work depends on which state or territory you’re in. Visit the Fairwork Ombudsman website for more information.
- Credit cards open up a new world of financial freedom for teens. It’s really important that you help them understand what credit means and how it can help to build a solid financial history, and also why it’s crucial to pay off your purchases. Help them manage their repayments by setting up a budget and a repayment reminder schedule.
When it comes to teaching kids about money there’s a world of ideas out there. Talk to other parents to see what they’re doing and surf the net. You will also find more great information on ASIC’s website www.moneysmart.gov.au
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