Tips for teaching kids the importance of saving
If you want to see a budding billionaire in the making, look no further than Ella Gould.
The 13-year-old student of Sydney’s Engadine High found her entrepreneurial spirit when she recently needed to save $1000 to use as spending money on a school excursion to the US.
“Me giving her money to ‘save' would have defeated the whole purpose of her contributing to the cost of the trip. So she turned her hobby of making candles into a business,” says Ella’s mother Lara Kilborn.
“In seven months she made $800 profit, donated to four charities and worked her little backside off,” she adds.
Kilborn’s advice to other parents who want to teach their kids about building wealth is to link money to the way it’s earned.
“The trick is not in the saving, it's in how they get the money to start with. Every time she went to buy something with the money she had earned, she would equate it to how many candles she would have to make and sell.
“That stopped her spending 99 per cent of the time. She's far more likely to spend money she’s given for birthdays without much thought than she is to spend her own money like that. Making your kids work for money makes them appreciate it far more and be more sensible with their spending habits,” she says.
Bessie Hassan, money expert at finder.com.au says teaching your kids basic concepts such as budgeting, saving and how to build wealth are important skills that will provide them with financial independence during their adult years.
“A good way to educate your kids about money is to involve them in money conversations. Obviously, the complexity of topics discussed will depend on their age,” says Ms Hassan.
For instance, if your kids are aged between about five and eight, start with the basics and explain how an ATM works. Another option is to show your kids how to set up a simple budget.
“If your children are aged between 10 and 12 you may want to discuss the idea of earning interest on savings or how to conduct an online transfer. If your kids are in their mid teens or entering young adulthood, it's worth explaining how they can invest their money in a high-interest savings account, property or shares,” says Ms Hassan.
Primary school age kids should also be taught how to open up and consistently contribute to a kids’ savings account.
Another idea is to take them into a bank to speak to a teller, so they understand that banking can be done online and in person.
This is also the age where kids enjoy learning about money by helping out at a garage sale at home, or assisting at their school’s cake stall or fair.
When it comes time to teach kids about more sophisticated financial ideas such as how share markets work, it’s also an idea to explain the risks associated with investing. This includes how to minimise their risk by diversifying their assets.
Also explain when it makes sense to receive professional advice, and how fee-for-service and commissions work in relation to advice and access to financial products and insurance.
You may also want to tell them how superannuation works so they feel comfortable discussing this with a future employer.
“Encouraging your children to be financially independent is a good strategy to adopt. Also teach them how to check their change when they pay for something at the school canteen,” says Ms Hassan.
When it comes to educating your kids about the money, it's all about open communication and providing them with real-life examples to which they can relate.
Start early and they are much more likely to have the right level of financial literacy to build serious wealth down the track.