Coming off Father’s day, and in light of the challenging economic circumstances we find ourselves in, I thought I’d broach the subject of financial advice for kids. I have three children aged 20, 19 and 15. The topic of money and finances has featured in numerous family conversations along our journey through life, so maybe these learnings can help when you decide to have conversations on money matters with your kids too. Here are my six pieces of advice or in some cases, learnings.
Many of us are inconsistent in how and when we provide pocket money to our kids. If they are to learn how to manage money, we need to ensure that the supply (pocket money) is consistent and predictable. For a few years I found myself forgetting to stump up the $10 or $20 on a Friday night, only to be reminded a couple of weeks later that I was in arrears with no clear recollection of who I had or hadn’t paid. Bad form Dad. A much simpler approach is to use an app like Spriggy, which is a fantastic pocket money app that I discovered about 5 years ago. If you haven’t seen it, check it out. It provides your child with their own debit card account where they can transact electronically, including via the Apple Wallet, making it available at any EFTPOS enabled retailer. Note that any liquor outlets are universally blocked. Money is automatically transferred to their nominated Spriggy account at set times from a secure parent wallet, so you never miss a payment. It also includes the ability to allocate jobs, set savings goals, and best of all, you can see what your kids are spending their money on.
Forming good savings habits
There is nothing revolutionary about this one. Just encourage your kids to save some money and don’t spend it all at once. It seems easy, but we all know these days that many people spend everything they earn, and increasingly more are spending more than what they earn. Teaching our children to put money away for a rainy day or to save for something more substantial than what their weekly pocket money can afford them is important. Learning to save at least 10% of what they earn from a young age will help them form good habits as they get older, and eventually move into the workforce.
Pitfalls of credit cards
One of my biggest concerns about the nature of the younger generations, is their desire for everything right now – that immediate gratification. It seems the days where you’d save up over weeks or even months to be able to afford that much wanted item is long gone. Increasingly, young people are getting access to credit cards to purchase items before they have earned the money. This problem is only getting worse with the rise of buy now, pay later platforms such as Afterpay and Zip Money. No doubt there is a place for these services but the rise in consumer debt is a growing socio-economic challenge, and many young people are going to learn the hard way; eventually paying well over the purchase price of an item by having to service late payment fees. For me, I have encouraged my two adult boys, in particular the one who is working full-time, to steer clear of credit cards. Perhaps one day when he travels overseas he will get a credit card but for now he is saving his money. In any case, as a 20 year old in lockdown in Melbourne there really is very little to spend your money on 🙂
Learning how to negotiate
This is about understanding the value of money but also ensuring that your kids build up their negotiating skills by seeking out a bargain that sees their dollar go further. A fun experiment I tried some years back when on holidays with the family in Bali was to give my kids some Indonesian Rupiah to go and buy themselves a gift. It was fascinating to see how quickly they embraced the whole negotiating process with various street merchants and even how one of my boys learned that walking away would almost certainly guarantee an immediate drop in price of the sunglasses he was looking to buy. I’m pretty sure those sunglasses barely made it through the ensuing summer but the memory of that experience has certainly endured.
Don’t invest in stuff you don’t understand
A few weeks ago, I was a little surprised when my 15 year old approached me and said that her friend’s brother was interested in chatting with me about the share market and how it all worked. When I enquired further, it turned out that some of his friends were getting involved in the share market, assumably through older adult siblings. On the surface I thought it was good that they were taking an interest in investing but the reality is that when you look at what is driving the share market today, particularly in the tech sector, it is first-time retail investors piling into the market in the hope of making a quick dollar. From someone who learned the hard way during the tech wreck of 2000 (that’s another blog topic), investing or as the case may be, gambling your money on something you fundamentally don’t understand is likely to end in tears.
Financial literacy & the value of advice
It probably won’t come as a surprise that I am a huge advocate for the advice industry. While my kids are still too early in their financial journey to need an advisor, I have shared with them various aspects of my own financial decisions and the reasoning behind those so that they’re exposed to it as much as possible through me. It’s a great opportunity to talk through those challenges, without all the detail, and to help them understand that things are often complex or that it is OK if you don’t understand all the details and need to turn to someone who does. Helping our kids understand that financial literacy along with having access to good paid advice are important factors as you travel through life and face various challenges, and of course great opportunities, along the way.
So there you have it. A few basic tips from my well trodden journey, which I am sure many of you out there are far more qualified than me to impart on the next generation of financial advice clients.