Raising money-smart kids is all about teaching them different financial skills at the right time. Taking a ten-year-old aside and talking about home loans won't mean much, but showing them how saving can help them buy that new toy certainly will.
It can be hard to know when to start teaching what, though, so here is a quick guide to answering that very question:
It's never too early to start teaching our kids the importance of finances. ATMs, family budgets and pocket money all offer small, easily digestible chances to show your child that money is earned and doesn't simply appear out of thin air.
It's never too early to start teaching our kids the importance of finances.
You may also want to investigate your options in setting up a savings account for your child, teaching good saving habits as soon as possible.
Part-time jobs offer your teenager the chance to really start taking control of their finances. Mobile phone bills also present a learning opportunity, and it might be an idea to relinquish responsibility of the credit payments for this device - it teaches your child the importance of good money management outside of the realms of just a simple bank account1.
This is also a point when you can start getting more serious about teaching them about credit. Children won't necessarily understand how credit and interest works, but teenagers certainly will. Talk them through the basics and show them when using cash might be a better idea than credit.
As young adults
Your teaching role doesn't end just because your kids are old enough to move out or head to university - in fact, this could be the most important part of their financial journey. They may be taking out their first credit cards or student loans, but without the right education from someone who knows the ins and outs of lending, they could end up putting some worrying entries on their credit report.
This is a great time to talk about loan contracts and repayments. Student loans in Australia give young people the chance to take on a relatively risk-free commitment, as repayments are directly tied to income2 - a little bit like training wheels for home loans. Teaching them about the importance of consistent repayments and how a credit report is used to receive lending is integral to ensuring they manage their debts sensibly.
If you want to stay on top of your financial literacy yourself, start by regularly checking your Equifax credit report - it might teach you a thing or two about how you could better manage your debts.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1Australian Securities and Investments Commission, Global Money Week.
2Australian Taxation Office, When you must repay your loan.