What do Bill Gates, Warren Buffet, Sting and Nigella Lawson have in common apart from wealth? This mismatched bunch is part of a vanguard of rich parents who have vowed not to leave multi-million dollar legacies to their children.
While some wealthy parents may believe their progeny are not equipped to handle wealth wisely, others simply want their kids to learn how to strive to get ahead just as they did.
In many families, children have become used to seeing their parents spend effortlessly. Instead of paying for purchases with hard-earned cash, transactions happen invisibly via a credit card.
The unintended consequence, regardless of a family’s financial position, can be the creation of a generation with little concept of saving before spending.
A recent Galaxy Research survey on attitudes to teaching money smarts to children revealed a gap between the generations on some issues, but broad agreement on others. i
The youngest group, Generation Y, was most likely to agree with the statement that kids should be allowed to enjoy their childhood and that financial literacy will come with time.There was broad agreement though that kids learn by example and that they should be encouraged to get a part-time job outside the home when they are old enough.
The government and banks are also doing their bit to encourage financial literacy among small fry. Financial watchdog Australian Securities and Investments Commission (ASIC) says teaching children how to budget and save will provide them with the skills needed in a world where managing money is more complicated than ever, due to the advent of easy credit and online shopping.
In addition to offering savings accounts tailored to children, many financial institutions publish tips on their websites designed to help adults teach kids about money.
There are even mobile phone apps that can train children to understand the value of money. One of them, iTunes’ Pay Pig, allows chores to be listed, priced, ticked off when complete and it even prompts parents to make an electronic transfer into their kids’ accounts when a task is done.
Among the tips ASIC provides is explaining to children when out shopping how items are priced (see box). When utility bills arrive, this is an opportunity to explain that services such as electricity, gas, mobile phone plans and the internet cost money and that if these accounts are not paid, the services they take for granted could be disconnected.
Talking about budgets and planning for future expenses can teach children about the costs of everyday family life and how important it is to put money aside for regular bills.
Lessons for life
Once they leave school, make sure they comprehend the HECS system which allows them to “borrow” from the government to complete their studies then repay the loan from their future salary with adjustments for inflation.
Training children in good money habits is one of the most responsible gifts a parent can give their offspring. Not only will it keep them off the debt treadmill in adulthood but it will give them the necessary tools to create their own financial destiny.
Teach your children:
- How to seek out value for money to avoid impulse buying
- That an item “on sale” is not a bargain if they don’t need it
- How to keep track of mobile phone usage costs
- To value the concept of earning before spending by giving them pocket money
- If a deal sounds too good to be true, it could be a scam
- The difference between credit and debit accounts
- To identify their spending “needs” as opposed to their “wants”
- By modelling good spending and saving behaviour
Hands-on best for teaching kids money smarts, TAL Life Ltd press release: December 9, 2014.