Teaching kids about money.

Hello, and welcome to our Ruby Connection and Davidson Institute webinar on ‘Teaching kids about money’. Did you know that 1 in 5 15-year-olds don’t have basic financial literacy skills? But I think this is such a fundamental life skill that it’s imperative we start to educate them sooner to help them be more financially independent and self-sustainable.

Now we want to change, not just the statistic that I’ve quoted (that 20% of 15-year-olds are not financially literate) but also that less than 1 in 2 Australians have any savings. So to me it makes sense to start teaching those valuable skills at a young age. Hence today’s webinar on teaching kids about money.

So, teaching kids about money. Firstly, I’d encourage you to talk about it openly and positively, and of course appropriately for the children’s age and experience. As I was growing up my parents never talked to me about money. I knew we didn’t have much but not how my parents managed it.

I think now that this was possibly because their parents didn’t talk to them about money either. It was a taboo topic because somehow they had the impression that to have money and talk about it was somehow wrong. But, of course, nothing could be further from the truth. Sadly though, my parents still don’t talk about it, even though finance has been my profession for the last 30 years.

And it’s becoming clearer too that they don’t talk to each other about it and my aging mother is becoming increasingly nervous about managing it should something happen to Dad. Now I know that I would prefer my children and theirs to approach money differently which is why its still forms a regular part of our family discussions.

By including things such as going to work to earn money, or how your business earns money, and then how you use that money to pay for your home, your food, clothing and so on, money becomes more of an everyday commodity and doesn’t build up that air of mystique that it did when I was a kid.

Talking too about how you make the choices about what you use money for and how you prioritise those choices about your money and your spending. Now I was watching a TED Talk the other day and the presenter was talking about using what she called ‘mental rehearsal’ and it was all about getting your children to visualise what they want the future to look like.

Imagine how you want it to look and feel, and then think about how you are going to get there. So, depending on their age, you might ask them a question like “Imagine we are going on holidays to the Gold Coast. What are some of the things you might like to see, or do? What do you think might be a fun activity?”

Then ask them to imagine what that’s going to feel like. And think about the things that you might have to do to make that happen and to get that feeling. Get them to visualise the activity or the experience and visualise what they might need to do to get there. And talk to them about how much it might cost and how they can earn and save the money to do that. And think too about anything else that may stop them from being able to do that thing.

This mental rehearsal on pretend scenarios then helps them to automatically go through a similar process in a real-life situation. I thought this was just a great way to have a money conversation without all the interferences of real-life pressures. Of course, we all know the tricky part about being able to talk about money with your children is that you yourself need to be aware of your financial situation and how you make your financial choices.

So, I’d encourage you to be disciplined about your money management so you can pass those good habits on to your children. Talking and conversation is very important, but the parents amongst us will know that kids are the greatest mimics in the world, and that they learn more from watching people than listing to them. So modelling the behaviours you want them to repeat is as important, if not more so, than talking about it.

So, if you’ll indulge me, I recall some of the things I tried to model for my children were things like being grateful for what you had rather than being afraid of what you might lose; being generous, there’s always someone worse off than you and it’s your responsibility to do what you can to help them; making mindful choices by considering all the available options; and to be thrifty and frugal but not stingy or miserly.

So I guess I wanted them to think about money as a tool. A tool to make life better, and that by learning to use that tool well, just like they learn to use a screwdriver or sewing machine, so that they can get the most out of it. Now I think we should also try to be more aware of the negative behaviours that we model unconsciously.

Think about it. If children see their parents arguing about money they are going associate money with stress and unhappiness and this is the last thing you want. Now, I will admit though that modelling is becoming increasingly more difficult when cash is becoming steadily more invisible.

Which brings us nicely to the next point about letting them experience it. If we think about it, these days our pay arrives in our bank account, we use our card or phone to make purchases. Sometimes we don’t even need to go to the shops to make purchases things just arrive on the doorstep. In a child’s eyes, all these things magically happen without them seeing the money management that goes on in the background.

Now I recall my father receiving his pay in the form of a cheque in the mail, which you then had to take to the bank, and they would cash it for you. Some of that cash went into the savings account but the rest of the cash went into his wallet and you would gradually see it being used up as he paid the rent, bought the groceries, put fuel in the car and so on. You could physically see that finite amount of money that gradually went away.

And if there was no more cash in the wallet that meant there was no more cash until the next pay cheque came in. It’s such a different scenario these days that we perhaps need to be more aware of the behaviours we’re modelling and perhaps even create fictious scenarios where we can practice good behaviours. Now that’s where some of the online apps can come in handy.

Things like Westpac’s PayPig or there’s one called Spriggy. These apps provide for goals to be recorded virtually and the savings goals that go with them and the recording of money that children earn and save towards those goals. So, instead of the cash in the piggy bank on the dresser increasing the visual on the app allows them to see how far they’ve come and how far they still have to go.

So these can be quite useful little tools as technology banishes physical cash and they’re on a medium that our children are fast becoming more familiar with. Another thing that I think is useful is to get children to earn their money by choice. Instead of giving them a certain amount of pocket money each week and then helping them decide how to spend it,

encourage them to think about the amounts they want to spend and the different jobs that earn different amounts of money that they can do to accumulate the amount of money that they want. This I think really speaks to the value of money. You know, “If I want a bigger bike, then I need to think about what I can do to get it”. So this involves making choices about what you want to spend money on, and choice on sourcing the resources that you need.

Encourage them to be creative about how they are going to get the things that they want. The more involvement a child has in making those choices the greater the value to them. There are many different ways that we can help our children learn about making money choices.

The simplest of which is provide them with 4 buckets, or jars, or piggy banks, or even virtual piggy banks. Then ask them whether they want to spend it now, spend it later (as in save for a specific goal), gift it, or grow it. Now the ‘grow it’ portion is unlikely to be as relevant for younger children, but it will come into play as they get older and have longer term goals.

The ‘gift it’ portion could be about savings for gifts for their friends or family or even making donations to charities, whatever is relevant in your situation. I was talking to a friend of mine recently whose 3 children were gifted $20 each from their visiting grandmother who they don’t see very often because she lives overseas. Now $20 is not a large sum of money for some but significant enough for a 9, 7, and 6-year-old.

So, my friend asked his children to consider carefully how they wanted to use this unexpected opportunity. He encouraged them to discuss it together and then come back and talk to him about their decision; and their decision surprised him. Even though they were each gifted the money separately, they decided to pool it for the greater spending power that it gave them.

So, their decision was to make a $15 donation to the RSPCA, to use $30 to buy a board game that they could all play together and hopefully with Grandma too, and that they could each have $5 to spend or save as they chose. Wow, I can tell you I was blown away.

A very mature decision in my opinion but one that I think has been guided by very positive influences and genuine aspirations to raise responsible, financially independent, and socially aware, human beings. Another opportunity in guiding children in making money choices is involving them in shopping. Groceries is probably the easiest, most frequent opportunity.

Get them to evaluate the best option. I’m going to use apples as an example here. Now I don’t know if you’ve noticed but the array of the variety of apples has increased in the last 12 months or so, and of course each variety has different features in terms of taste, size, texture, and of course different prices.

Now, it may be that on any given Saturday that Red Delicious apples are the cheapest, but they may also be the smallest, the spongiest, and the most marked. Whereas the Pink Lady’s may be more expensive, but they are a better size and clearly fresh and crunchy. So, involve the kids in making the choice. What’s most important to them? The price or the quality.

Now if they choose the higher price, do they need to compromise on another part of the shop? You know, does having the better apples mean that they may need to have a lesser quality cheese rather than the one that they really like. I think this ability to evaluate choice on the basis of what’s the best value for my preferences, and what does that choice mean for my other purchases, is a critical skill, not just financially but for life as well.

So, so far I’ve talked about some different approaches to teaching kids about money. Everyone learns differently so I think it’s important to incorporate all of these things into their learning. If you think about it, some kids are very visual, some like to hear, and some like to do; but all of these methods of teaching are about developing a positive mindset about money.

Now the Davidson Institute has some great tools to help you do that. Our Financial First Steps booklets are available for a range of ages. They address skills such as setting goals, including savings goals, prioritising those goals, and developing a money plan or a budget.

The booklet for teens also has some information for those about to enter the workforce. Information about getting paid, superannuation, and even using online banking securely. So, I hope you have a look for those Financial First Steps booklets as I think they could be helpful for you.

Now, what I want you to remember is that money is not the root of all evil. It’s simply a tool. A tool that helps us get the things that we want in life. Everyone’s aspirations and capacity are going to be different but by developing a positive mindset, supporting the development of money management skills (or financial literacy if you want to call it that) and encouraging our young ones to take control and be responsible for their own money, I think you enhance their ability to become

and self-sustaining contributors to the world we live in.

So, there it is. My thoughts on how we can teach our kids about money. Talk about it, model it, let them experience it, but most of all develop a positive mindset. Now, am I an expert? I do have some experience, but I do look for every opportunity to learn more. And judging by my own children’s differing financial circumstances, my ability to guide them has evolved over time as I have learnt more and become more responsible for my own finances.

The important thing to remember is to start early but also that it’s never too late to start. So, thank you for viewing our recorded webinar today on teaching kids about money. I trust you found the information useful and helpful. There is plenty more available on the Ruby Connection and Davidson Institute websites, so I do encourage you to check them both out.