Teaching children good financial habits is one of the many important tasks that parents grapple with, often starting with the discussion about how much pocket money should the children get, how much authority do they have to deal with that pocket money – and is there an accepted scale of paying the pocket money for performing different tasks?  You may be surprised to read that the premise of that question is itself questionable in this era (see the closing paragraphs to this post).  

You may have pondered the following question yourself at some stage –

“Do you have any advice or tools to help me teach my children (let’s say they are in school years, between 1 and 12) about finances and good financial habits?”

The question itself is one that financial advisers are frequently asked.  Their responses to a client are able to be tailored to the personal circumstances of the client, but in this article the generic response will satisfy most of our readers primary information needs.

Firstly the advice –

There are many ways to teach children all of life’s skills and as with most of them, the earlier a start is made on the process, the better.  An important matter to be mindful of, is that our children are learning from us every day: they learn from our example, in financial skills, as well as general life skills such as manners, respect, fair play, hygiene and so on.

A corollary to this question of course, is how sound are your own financial habits?  Are you financially literate; do you regularly budget and save; do you have a financial/ wealth management plan in place with defined goals and objectives, implemented without exposing you to financial market risks beyond your capacity to bear; and do you seek counsel regularly from an experienced, qualified financial adviser?

Conversations about money and finances can take place in everyday situations and can be as simple as explaining to a pre-schooler that money is needed to buy things and that we earn money by working, to more complex discussions with teens around setting goals, setting aside funds to pay for them, the use of credit facilities – and budgeting.  (This conversation is becoming more challenging as society becomes more cashless and the child’s observations are of a piece of plastic or of a smart phone/ device being passed by another electronic device in exchange for the items acquired.  Whilst it may be a little more challenging, it can broaden the scope of the teaching and of the learning.)

For primary school-aged children, conversations about money might include:

  1. Comparing prices to make sure you are getting the best deal.
  2. How to be careful when shopping online and never give personal information.
  3. The need to be patient when saving your money so that you can then make choices about how to spend your money and get the best value for it.

For teenagers, especially older teens who are working, then discussion might include:

  1. Why it’s better to use cash than credit.
  2. Understanding the difference between debit and credit cards.
  3. Why it’s good to have savings in case of a money emergency.
  4. When you work, you need to check your payslip to ensure you have been paid correctly.

Budgeting and saving are two of the best areas in which we can teach children good financial habits. 

Younger children can start to learn about this with their allowance/ pocket money.  For those who learn best with tactile aids, you might even set up Spend, Save and Give jars.  Older children can also benefit from such a system, albeit they may prefer using an app to track their spending and finances.  (The Give portion is an important social lesson – and discussion with the child about the role of the project to which they choose to give, can also be important in teaching good financial habits.)

Practising the lessons being taught is another important element in the learning process for the child: cause and effect, and action and consequence can be taught with examples they understand.  Being careful about purchase selections, businesses from whom they purchase, warranties and guarantees information, specifications and fit for purpose can be taught at appropriate ages – and the relationship between earnings, saving and spending can be graduated to the child’s age and level of financial maturity.

In addition, it’s important to have a conversation, building trust with your children that will encourage them to come back to you as the first point of call for advice if they make a mistake, rather than taking  a quick fix that might end up hurting them even more.  Again, this advice applies to all of the teaching we need to impart to them, not just the financial learnings. At an appropriate time in the child’s development of their good financial habits it will benefit them if you show them what it means to manage money, where it comes from, where it goes (especially, those invisible expenses – like utilities, rent, mortgage payments, school fees etc.) and what happens when there isn’t any (or why it is important to save some for later – an established emergency reserve).

…and then the tools –

You will find some helpful guides to teaching children good financial habits (about money) on the MoneySmart website. There are also several books on the subject including, ‘The Barefoot Investor for Families’1, ‘Smart MoneySmart Kids’2 and ‘FLY: Financially Literate Youth’3.

A helpful tool in the teaching of good financial habits is to explain to children (in an age-appropriate way), how much you earn per hour, how much the government in taxes – and why; and use this to quantify purchasing decisions. For example, if you earn $30 per hour after tax and then your child asks you to buy them a new iPad, you can tell explain: “This purchase will cost 20 hours of Mum’s work – and I still have to earn money to pay for our home, food, clothes and other essentials.”

A Tip: from the child psychologists – beware how you couch the payment of pocket-money and avoid paying children for the home tasks they have been assigned, for good behaviour, or for other tasks and behaviours, as it can result in the child developing an unhealthy entitlement to rewards.

A possible option: family psychologist Marina Melia in her books, ‘Our Poor Rich Children’; and ‘Leave Your Kids Alone!’ reportedly talks about setting up an agreed system where a child (like everyone else who is part of the family) receives an allowance but there are strict rules and limitations to this allowance that are consistently followed by the parents (both for themselves; and in their dealing with the children).

(You might also be interested in our previous posts on a similar theme: Children’s savings accounts; and Intergenerational wealth management.)

Help is at hand to guide you with good financial habits
(that you can then teach your children).

The experienced team of advisers at Continuum Financial Planners Pty Ltd have many years of experience in helping clients to better understand their financial status and the strategies to get the best from available resources to achieve attainable goals and objectives.  We work to the mantra that – ‘we listen, we understand; we have solutions – and we care’ delivering personalised, professional wealth management advice to engaged clients.  To benefit from the experience of our many satisfied clients, contact our office to arrange a meeting with one of our team: either phone (on 07-3421 3456) or complete the website Contact Us form and we’ll get back to you.

1 Author: Scott Pape 
2 Author: Dave Ramsey
3 Authors: Jai and Marlies Hobbs

(This article was posted in March 2021: it will be refreshed/ updated as needed from time to time.)