The best ways to educate our children on the value of money

Cara Brett 28 September 2014


Given how important navigating our financial lives are, it is surprising that schools generally don’t teach kids too much about the ins and out of money. Many teens leave high school none the wiser on an array of topics including buying a house, credit card debt, superannuation, insurance, all the way to opening an electricity account.

Sometimes as adults, we can take for granted what we know about money and everyday life, so it is important to take a step back and think about what you are teaching your children about money and why.

Is there a right time to start teaching? Well, the earlier the better. When children start to realise they ‘want’ something, this is the time when the teaching should start.

To be honest, you are already teaching them life lessons when you swat away the chocolate bar at the grocery store counter. You are teaching them that just because they ‘want’ something now, doesn’t mean they get it now.

There are a heap of lessons to teach our children, but I have come up with my list of 5 fundamental lessons and how you can go about teaching them.

The lesson: Teach them how to earn

Ok, some people scoff at pocket money, but I am an advocate. The way I see it, until you are 14 and 9 months, you have no realistic way of earning money, but it doesn’t stop you learning the value of it before then.

Pocket money is a great way to teach your children that money doesn’t grow on trees. The key to this however is to allocate specific jobs to do in order to receive their pocket money. Remember, it shouldn’t be a right, it should be earned. Whether it is making the bed every day and emptying the dishwasher, or cleaning up the back yard each weekend, give your children specific jobs and responsibilities. If they don’t complete the jobs, then they simply won’t get their pocket money.

For children to truly learn this, there needs to be a correlation between earning and receiving. Don’t be afraid to deny them a payment if the job is not done. You can bet that next week they will have the job done and have their hand out ready for the payment.

This only works well when it is enforced and there are specific rules that the children are aware of. If however, you give pocket money to your children for no work at all, you are teaching them that money doesn’t grow on trees, it actually grows in mum and dads wallets whenever they want it.

If that is your plan, then you are better off giving no pocket money at all.

The lesson: Waiting to buying something that you want – Delayed gratification

As children start to get older, they set their sights on bigger and better things. That could be the top of the range skateboard (more likely an Ipad these days), or something over and above what you are happy to pay or something special that they would like.

If we got whatever we wanted, whenever we wanted it, we wouldn’t really appreciate what we had as much, would we? Everything would be easily replaceable. There is something to be said about the buildup to something big and special.

If your children have their eye on something special, help them to get it, through saving up for it and providing an incentive.

For example, your 10 year old son Domenic wants a Playstation, and it costs $250. It’s not his birthday, it’s not close to Christmas, and it is too much money to just buy it for no reason. Why not encourage him to save his money for this. To sweeten the deal, offer to pay $50 or $100 of it, if he contributes the other portion.

This will help your children to understand the value of big ticket items and how much work goes into buying things like this. You are still helping out, but not outright buying it for them. Plus, the big smile on their face when they hand over the money to the cashier will be priceless.

The lesson: Making choices about how to spend money – Budgeting and forecasting

When your children do start to earn some money, whether it is via pocket money or their first casual job, start talking to them about budgeting. Now this doesn’t mean that you have to sit down with a complicated spreadsheet and get down to the nuts and bolts of their money.

You might want to start a light conversation around what it is they are planning on spending their money on, and whether they want to save any for another day. For the older kids who have their first job, why not encourage them to track their spending on an app, if only for the fun of it. If anything, it will make them conscious of what they are spending their money on. It might not make a difference while they are living at home, but when they do eventually fly the coop, they will know how to evaluate their financial position because they have been doing it for years.

The lesson: Credit cards and borrowing – What should you borrow to buy?

Oh this is an interesting one. Often at the stroke of midnight on a child’s 18th birthday, the allure of a credit card can be too enticing to resist. All of a sudden they have the ability to make large purchases on borrowed money, and sometimes things can get a bit out of hand.

Many parents have had to bail out their children, only to have the credit racked up again.

With this one you can start the training before they are 18. If your kids come to you wanting to borrow money for something specific and time critical, consider lending them the money…… with conditions.

Remember we don’t want to take away from lesson two – delayed gratification, but some purchases are time critical, I understand that. Test out lending the money to your child with interest. Maybe just a nominal amount, but you should include interest.

For example, you could lend $100 to your child, and if they haven’t paid the money back within 1 month, you will add $10 to that amount, and so on. Having an open ended loan to the bank of mum and dad won’t encourage them to pay you back, but a ‘fee’ for late payment will.

For those parents who think this might be a bit too cruel, it really is an amazing lesson to teach your children. There are serious consequences when it comes to credit. Obviously we touch on the idea that you have fees (interest), but misuse of credit cards and store cards, could leave your children with horrible credit ratings. When your children eventually want to buy a house, they will have to come crawling back to you to go guarantor, which is a lot riskier than lending them $100 for this little experiment.

The Lesson: Encourage open conversations about money – The family holiday

Money is a taboo topic of conversation in many families. Now I don’t think every topic should be discussed with young children, but discussing the costs of different purchases relevant to the home should be something that happens on occasions.

An example could be involving your children on discussions around the family holiday. With the children who are a bit older, discuss with them your budget for the holiday and ask for input of ideas. This will help them to understand that everything costs money, and that it is normal to have discussions about what you are spending money on and why.

Have a family meeting to discuss your holiday. Let them know you are tossing up between 2 or 3 different places, and you have approximately $4,000 (or whatever loose amount) to spend. Outline what $4,000 will buy for each holiday destination and have an open discussion with your children about it. Discussing this with your children teaches sooooo many different lessons.

Think about it, if they have input into this, they will be happier with what you ultimately do. For example, if you all decide to take the holiday that costs the most, in exchange for cooking your own meals every night whilst on holidays, that was a decision the family came to together. There should be less complaining when takeaway isn’t on the menu each night because everyone was involved in the decision making process. That alone teaches your children the value of buying one thing over another, and that you can’t always have everything at the same time.

You are treating them more like adults and involving them in the process, but the underlying lessons you are teaching them are very important.

So then how do you do it? Do you offer pocket money or not? And why?

One method may be best for one family and not another, but it is important to be aware of the things that kids will pick up.

There are no hard and fast rules, and I am not a mother so by no means am I an authority on the topic. I am just a loving aunty with a background in finance 🙂

The post is from our resident Financial Planner Cara Brett, check out her details in the About Us section.

Posted in: Cara Brett, and Financial Planning

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.