Many of us out there have children and I would say that ALL parents want to see their children live wonderful lives. Parenting can be challenging at the best of times, and it can be hard to navigate all the different stages they go through and the lessons and experiences that you can share to help them prepare for their life journey. One of the things we can do to help them throughout their adult life is to establish solid financial habits that see them make smart choices in the future.
Some of you may have already started with setting chores for your children to complete each day and some of you may have children starting their first jobs. Either way, your children are already developing a work ethic and learning about ways to make money. Why not use this opportunity to go a step further and teach them what to do with that money?
Some tips to get started are:
- Set goals – are there things your child wants to do in the future? Perhaps help your child by writing down what they want to achieve in the future that will require money. When they’re little this could be buying a toy and as they get older maybe this becomes their first pair of Air Jordan shoes, going to the movies with friends or even buying their first car. Regardless of what it is, writing it down gives them a target to aim for and helps keep them on track. Remember to also write down how much they will need and when they want to achieve their goal!
- Develop a plan – how much are they willing to put towards their goals? Discuss with your children how much of their hard-earned money they’d like directed to their goals on a regular basis. This doesn’t have to be all of it, remember this still should be a fun exercise! But remind them that the more they put towards it, the faster it can be achieved.
- Track the plan – as they save, track the progress. This could be on a physical chart, or even on an app. There are many finance apps for kids that offer chore and money tracking. Spriggy is a common one but it comes with fees, but there are many more like this, including bank accounts specifically designed for children. Seeing the progress will help keep your child aiming at their target.
- Celebrate the success – this is really the concept of delayed gratification and positive reinforcement. When your child achieves their goal, celebrate! Kids often find patience difficult, and this will be a skill they can apply to all areas of their lives.
The earlier you can get started on these things, the more time your child gets to practice these skills. A study recently completed by Westpac via Sweeney Research discovered that children are 45% more likely to have a better understanding of the value of money if they earn money through chores or a job and track their savings using technology, compared to those who don’t. This compares to only 27% if they earn money through chores and jobs but don’t track their finances, and 18% if they don’t earn money through chores and jobs and don’t track finances. This shows that working hard for their money and then tracking it helps develop the skills they’ll need in the future.
Now, it’s not uncommon for us parents to want to help out our children financially. And this could be for various reasons. There are different options available to build up a nest egg for our children but the best option for you depends on many things like your time horizon (amount of time before you intend to gift the funds to your child), the amount of risk you are comfortable taking and your income (for tax purposes). The most common options are usually saving into a bank account destined for your child, or starting an investment.
If you decide a savings account is the option for you, shop around. Many banks offer high-interest accounts and special rates based on meeting some eligibility conditions. If you decide that an investment is the way to go, remember that the basics of investing remain the same, even for your children. Diversification reduces risk and a long time horizon, and remaining seated is critical for riding out short-term volatility. Perhaps even check out our AP Direct Invest options, which offer 6 low-cost, broadly diversified portfolios that could be the answer for building a portfolio for your children. And if you’re not sure, you can always schedule a meeting with one of our highly skilled financial advisers.
Money is a tool to help reach goals but achieving goals also requires discipline and hard work. The earlier we can teach these things to our children, the more likely our kids will make smarter choices about money in the future.
Resources: Westpac Kids and Money Report
Ashleigh Thompson (BBus(FinPlan)) ) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Note: This material is provided for GENERAL INFORMATION ONLY. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.