Kids on the coast

When it comes to kids and money, the questions are endless. Do we give them pocket money? Make them earn it? Or indulge them in a way we weren’t as children? At what age should they get a bank account and start having to pay for things themselves? Should we tell them about the never ending bills, costs involved with their education and interests, or should they be blissfully ignorant of all money worries?

Pocket Money

Advanced Wealth Creations financial advisor Rick Gardner believes children need to be taught about money just as they are taught maths and English. He says they should be encouraged to, “work to earn”. Rick thinks chore charts are a great idea so children are given set tasks like making their bed, and if the chores are not done they don’t get paid.

Along with the chore charts he suggests goal charts. These are designed to encourage the children to save for a specific item or holiday. They can record the money saved and work out how much more they need to buy that coveted item.

While parents may be the regular givers of pocket money it is often the grandparents who are over generous. I spoke to a group of Year 4 students who have received birthday and Christmas gifts from grandparents of between $100 and $200. These are large amounts of money for nine year olds whose concept of numbers does not extend beyond hundreds.
 
Among the Year 4 students, the range of payments for work varied enormously. One child got $4 for cleaning the bathroom and bedroom, while others received $5 for making the bed, and $10 for washing the car. It is good to work out a suitable amount remembering as they get older, and the chores get more complex, the amount earned will also increase.
 
Banking

Rick is in favour of children having bank accounts in primary school. He says it is never too young to start saving and tells of first home buyers coming to him for advice with their Commonwealth bank, Dollarmite account, in excess of $60,000. The Dollarmites Club is for children under 10. St George has a similar system with the Happy Dragon Club for children under 13. Each has a website with puzzles and games to encourage children to save. Visit www.determinedtobedifferent.com.au or www.stgeorge.com.au

Understanding how to budget

The use of credit cards, Rick advises, is best left for teenagers. Before relying on plastic, they need to be taught about interest, minimum payments and consequences. The same applies with phones and he sees a lot of 19 year olds with a debt of up to $50,000 because they did not understand the mobile phone plan, or how interest works.

Rick suggests that primary school age children should only have cash when shopping. At that age, a cash card or credit card gives a false sense of having money. The child carefully carrying the $10 in a wallet should be more aware of how much money is spent when handing over the money to buy something.

Don’t, however, make the mistake I did when one Christmas I gave my son $20 to buy presents and he put it down in the toy section to look at something and then lost the whole $20. I learnt the hard way too. Why not start early? Encourage children to work out the change for tuck shop, or when buying an ice cream and make money transactions a part of everyday life.

Rick suggests it is important children grasp the concepts of earning money, and the value of things, so they understand that expenses need to be less than income. Children need to understand that when parents purchase and hear the question from the cashier, “Would you like to take out cash with that?” and the parents reply, “Yes please, one hundred dollars,” that the children understand this money is coming out of their bank account and is not a gift from the store.

Paying the bills

Rick suggests that parents do not use the negative statement, “We can’t afford it!” It is better to explain why. So if you are going on holidays say ”We can’t afford to buy that now because we are saving to go on holidays next week.”

It is a good idea to remind children that bills have to be paid and measuring bills over time can help instil conservation of the environment too. Instead of nagging kids not to leave lights on, or use too much water, why not show them the bill and make it a game to reduce the next one? (You can even build in a financial incentive if they manage to cut the costs!)

Preparing for the future

Some parents like to plan ahead for their children’s education and needs. “The prepared parents start with babies, booking them into schools, establishing an education trust fund that requires both parents to sign if money is taken out, and establishing a savings schedule,” Rick says.
“These can be tax effective which is an added incentive.

“People should aim to save 10% of their income.”

Not an easy task as we are so keen to spend, but perhaps leading by example and instilling this in your children will begin good habits that may last a lifetime.

It is good for children to learn that they can’t have everything they want. Teaching children to enjoy what they have, value what they have worked to achieve, and accept that they can’t have something just because they want it contributes to a better understanding of the value of money. Teach your children good money skills as they grow and you will be giving them a really good start to becoming financially independent when they leave home.
 
Rick says, “At the end of the day our children grow into adults and 99.9% of the time they have to earn their living, so I don’t see why they shouldn’t have to start earning for what they want when they are young.”

Money-ed box

With four sections and a see-through cover, this money box helps teach kids about dividing their income. They are available through www.kidsmoney.com.au. Boxes are labelled ‘giving’ for charity, ‘living’ for expenses, ‘saving’ when they want something special and ‘wealthing’ for long term savings. (The last two are screwed down to avoid temptation!). RRP: $35. Financial advisor Greg Smith has also written a series of wonderful books that enforce the concepts.