Growing up, nothing beat tipping out the contents of your piggy bank, ready to reap the rewards of your hard-earned savings. And while cash is seldom used these days, teaching kids about money through physical coins and notes remains important as ever.
By reinforcing the value of money, you are developing your kid’s financial literacy. So, by the time they fly the nest, they will be ready to pay their bills and lodge their tax returns without calling you for help.
OK, we can’t promise that. But if you start early when it comes to financial education, you can equip your kid to handle adulting with ease.
Here is your complete guide to teaching your child about money.
At what age should you start teaching your kid about money?
Each family’s circumstance will be different. However, as a general rule, you should start teaching kids about money when they’re around four years old.
“As soon as they start to show signs of understanding the concept of money is a good time to start,” says Yish Koh, managing director of Kit (Commonwealth Bank’s pocket money app for kids).
“Help them with recognising coins and notes, understanding different ways to pay, and learning to take ‘no’ for an answer.”
How to teach your child the value of money
Wondering how to teach Financial education for kids doesn’t have to be difficult. The more you openly talk to children about money in ways they will understand, and model positive budgeting behaviour, the easier it will become. Here are the three things you should encourage your child to do:
Partake in financial socialisation
This just means talking to your kids about money in everyday situations and in an age-appropriate manner.
“Share how you save and what you are saving towards and encourage them to do the same. Or work together to save for something – like a family purchase,” Yish suggests, adding that younger children find enjoyment and motivation in doing something with a parent or carer.
“The supermarket is a great opportunity to explain how to decide between purchasing different products – looking at cost, size, and even brand, and what ultimately influences what you decide to buy.”
Create savings goals
Having a goal to work towards not only encourages your kid to hang on to their money, it also teaches them the value of patience and budgeting.
“Savings goals exercise the muscle of delayed gratification which is fundamental to becoming good at saving,” Yish says. She also recommends starting small and using visual aids to track progress.
“Remember to celebrate small successes on the way to keep them motivated. When they feel the achievement of having completed a smaller savings goal, start to aim for larger amounts and longer periods of time.”
Get involved with budgeting
Allowing your children to get involved with the family budget not only sets them up to be financially savvy in adulthood, it saves work for you!
“This could include letting them budget for a weekly shop, their own birthday party, or a family outing,” Yish explains.
“When they’re old enough, sit them down and include them in any talks you have about the family budget. Whether you have a spreadsheet set up that you go through each month or take a look at your spending and reassess every few weeks, this is an important life lesson that will stay with your child and actually set them up for the future.
“It’s amazing how many children fly the nest with little clue of just how much things cost. From council and electricity rates to weekly food shops and more, many parents leave their kids out of these cost-of-living talks thinking they are protecting and providing for them. Really, it doesn’t do your child any favours at all. Send them out into the world prepared by bringing them into your family budget talks and setting them up with financial capability for life.”
Should you give your kids pocket money?
We recommend yes, but in a way that suits your circumstances.
“Research has found that giving pocket money to children between the ages of 8-12, monitoring their spend, and advising them about saving and budgeting when 12-16 is the most effective strategy they found in helping children save money,” Yish tells us.
“Pocket money that is earned for doing chores helps children understand the link between effort and reward. Some parents hesitate to pay for chores as they see them as an expectation of being part of the household and don’t want to make chores ‘optional’.”
How much pocket money should you give your child?
It’s up to you. But if you’re looking for a rough idea, on average, kids aged 6-8 get $8 per week and kids aged 9-12 get $16 per week.
What is the first thing you should encourage your child to do with their money?
Encourage them to save a portion of their money, and to learn the difference between needs and wants.
“In a culture where instant gratification has become baked into daily life (think same-day delivery and on-demand streaming), kids need a little help building those key decision-making skills that allow them to make good financial choices now and in the future,” Yish says.
Are there money milestones your kid should be reaching?
Not necessarily. But, to ensure their financial literacy is optimised going into adulthood, it is worth helping your kid to develop the following skills
Most financial habits are determined by age 7.
By ages 4-7 your kid should ideally be able to identify and understand the value of coins and notes, and add them together. They should also understand that money can be exchanged for goods, and when “change” will be returned. Many kids at this age will also create “mini shops” to pretend to sell things to others, which is a great learning tool!
By ages 8-10, your kid should be able to track and monitor their own earning and spending, understand the benefits of saving, and be able to resist impulse purchases.
“Encourage them to set savings goals and make choices on spending. By teaching budgeting and saving basics, kids can develop healthy financial habits,” says COO of My First Nest Egg, Annie Shoen.
It’s also ideal that they are able to read and understand basic financial documents – like receipts. Around this time, your kid should be grasping the fact that people will make different financial decisions based on their circumstances.
By ages 11-13, your kids should know their rights and responsibilities as consumers, for example receiving a refund. They should also start to understand how investing and compound interest work, and that the government is paid tax.
“Before kids can learn about investing in more risky stocks, teach them how to research the market and learn about companies in which they have an interest,” says Annie.
Should you charge your working kid board?
If you want to teach your kid the value of money, charging a weekly, fortnightly, or monthly board to your working child may be the way to go.
“It’s shown that giving children financial experiences and letting them make their own decisions with budgeting helps them ‘learn by doing’ and is good practice for the real world,” Yish says.
“Parents often talk about not wanting their children to worry about adult concerns (like paying rent and bills); however, if you want to charge board, you can do it in a way that doesn’t cause stress.
“The amount should be a small enough proportion of their earnings to ensure they are still motivated to earn money, but you could also put the money aside to save towards something they want, or as a gift when they move out of home.”
*This article takes general advice from CommBank. Make sure you seek financial advice appropriate to your individual circumstances before making decisions.