Kiddipedia
As parents, we play a pivotal role in shaping our children’s attitudes and behaviours towards money. This article offers strategies to nurture a healthy money mindset, model responsible financial behaviour, and empower children with practical skills for navigating the complex landscape of personal finance.
Nurture a healthy money mindset
Research shows a correlation between parental money views and income levels, highlighting the impact of financial psychology on financial outcomes. By acknowledging how our own upbringing impacts our financial mindset, we can take proactive steps to foster healthier money habits in our children. Striving for a balanced approach to money, neither too avoidant nor overly worshipful, encourages a healthy perspective. Teaching that money isn’t synonymous with happiness will build financial well-being in our children.
Model responsible money behaviour
Demonstrating responsible money management and fostering open communication about finances sets a positive example for children. Let your children see you budgeting, saving, and making wise financial decisions. For example, when shopping together, show your children how to compare prices and look for deals. Explain the concept of value for money and encourage them to think critically about their purchases. This helps them develop smart shopping habits and understand the importance of making informed financial decisions.
Provide pocket money
Using pocket money as a tool for teaching financial responsibility helps children learn the importance of budgeting and saving. Encourage them to allocate funds to different categories, such as spending, saving, investing and giving. Assigning chores or tasks around the house and paying children for completing them can teach them the value of work and earning money. This also helps them develop a strong work ethic from a young age.
Encourage entrepreneurship
Support your children to start a small business, such as a lemonade stand, car wash service, or selling handmade crafts. This helps them learn about earning money, managing expenses, and customer service. Alternatively, you could offer pocket money bonuses if children look for opportunities to add value around the home, beyond their weekly chores.
Set savings goals
Encourage your children to set savings goals for things they want to buy, teaching them the value of saving and delayed gratification. Help them break down the total cost into manageable increments and create a plan to save a certain amount each week or month, depending on their allowances or earnings. Consider using a savings chart or jar to track progress visually and celebrate milestones along the way.
Introduce Investing Concepts
Around the age of six, children can begin to grasp basic investing concepts that lay the foundation for future financial literacy. Start by educating them about the power of compound interest, which shows how money can grow over time when invested wisely. Introduce the idea of diversification, explaining how spreading investments across different assets can reduce risk. Emphasise the importance of long-term planning, explaining how time, patience and consistency yield results.
Help them start investing
Consider opening an investment account for your child where they can direct a portion of their pocket money. To keep things simple, consider an investing app targeting children. Most of these allow you to invest in ETFs and generally have lower fees and engaging interfaces where children can watch their money grow. Or for a more tangible approach, consider helping children purchase shares in companies they are interested in. For example, they might feel proud to own a part of Nintendo or walk into their local supermarket knowing they have a stake in its success. By making investing relatable to their interests children can develop a deeper understanding.
Raising financially savvy children requires intentional effort and ongoing education. By understanding our own attitudes toward money, modelling healthy behaviours, and implementing practical strategies, we can empower our children towards financial success.
Brenton Tong is Managing Director of privately-owned financial advice company, Financial Spectrum, and one of Sydney’s top financial planners (Adviser Ratings). A father of three, Brenton is passionate about helping families live their best life by making smarter financial decisions.
