Teaching Your Kids About Money
I decided when my boys were young that I would teach them both about money and investing. I opened KiwiSaver accounts for them when they were only months old. They also have non-KiwiSaver investment accounts to help fund the cost of university. My wife and I add to the accounts when we can and so do the boy's Grandparents.
Being an ex-trader, I would play pretend trading games with my boys when they were younger. They would act like a “big trader” and yell buy orders for shares across the trading desk, aka our kitchen table.
Once or twice a year I book an appointment in my office with them and we have a progress review. We go over their investments, which shares they own, what the companies do, and what the performance has been. They just like to add it all up. They get quite excited, especially when the money increases and in their words “didn’t have to do anything”.
Being an ex-trader, I would play pretend trading games with my boys when they were younger. They would act like a “big trader” and yell buy orders for shares across the trading desk, aka our kitchen table. I would also explain how their investments work. I would explain that they own shares in Boeing, a company that makes airplanes (as they both loved airplanes). I thought they understood the concept and were getting the hang of it until my son’s teacher pulled me aside one day and asked me “what’s the deal about you or your family owning airplanes?” I said "We do not own airplanes, what are you talking about?" Then she said my son had been telling all the kids that he and his dad own a lot of airplanes! Then I realised and said that my son owns shares in Boeing. I always get a kick out of that story!
I recently came across an article written by Carrie Schwab-Pomerantz from Charles Schwab who has put together five key life lessons for helping you teach your kids about money.
Five life lessons to help teach your kids about money1.
1. Getting an allowance
Want your kids to make good money choices? Give them some money of their own to manage. An allowance is a good first step. Be sure to set expectations right from the start. For example, you may want to tie at least part of their allowance to chores, which can give them a taste of responsibility as well as an understanding of what it’s like to work and be rewarded.
Also, what do you expect your kids to pay for with their own money? Help them come up with a budget to handle their expenses – and don’t bail them out if they fall short. The amount and frequency of an allowance will change as your kids get older, but the main thing is to let them manage and make their own mistakes.
2. Saving for a big purchase
Whether your child wants a bike or a laptop, having a genuine savings goal brings the concepts of trade-offs, delayed gratification and compound interest home. Start by creating a time-frame and savings plan for making the purchase. Help your child track spending and identify opportunities to save. An online savings calculator can be a great motivator – as can offering to match a portion of your child’s savings. This would also be a good time to help your child open a savings account and become familiar with the concept of compound interest.
As kids get older and their savings goals get loftier – say a car or a big trip – there are other financial lessons that go beyond savings. There’s researching and comparison shopping, possibly financing, and handling associated savings. That takes not only savings for the purchase, but ongoing budgeting and money management. A monthly budget planner is an excellent tool to help your teen put the numbers together, even if you are doing it as a joint venture.
3. First job
If you have not done so already, now is the time to help your teen open and manage a current account and perhaps even a credit or debit card. To reinforce saving, encourage setting up an automatic deposit from a current account to a savings account. Plus, as your teen has more savings, you could suggest opening an investment account (custodian if under 18) or even a KiwiSaver account and introduce some basic investing concepts. A KiwiSaver account is a great way to reinforce the importance of savings for retirement and a first paycheque is a great introduction to taxes.
4. Going to university
If your kids are university bound, hopefully you have involved them in savings towards this major goal. But there is more to university costs than tuition. Sit down together and talk about living expenses, books, food, transportation, personal care, insurance - all the things they may have taken for granted so far. Be clear on what you will pay for and what you expect your university student to cover. Then create a budget together.
Also make sure your student has a current (working) account and know how to properly use a debit card or a credit card to handle expenses. If you have not had the credit card talk yet, now is the time to get into the details from interest to late fees to credit reports. Be sure to stress the pitfalls of misuse, which could really come back to haunt them later in life.
5. Moving out
Hopefully, the lessons learned so far will help your kids with this major transition, but they probably still need your guidance on the financial realities of living on their own. Understanding how to balance essential expenses and nice-to-haves, car and renters’ insurance, an emergency fund, staying on top of debt (especially student loans) - if your kids have not been interested in these things before, they certainly should be now.
Share your own life lessons
We all learn from our own experiences, but your kids can learn from yours as well. Share your personal financial lessons – where you have succeeded and where you have failed. Then let them have their own successes and failures. That may be the most effective life lesson of all.
If your children or grandchildren do not already have their KiwiSaver account opened, you should consider doing so and your financial adviser would be more than happy to discuss this with you.
As always, if you have any questions on this or any financial matter, please contact your financial adviser.
Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular investor’s objectives, financial situation or needs. Any opinions contained in it are held as at the report date and are subject to change without notice. This document is solely for the use of the party to whom it is provided.
1. This article was downloaded 8 April 2019 from Charles Schwab (USA) Schwab Investing Insights ‘Teaching your Kids About Money? Here are Five Life Lessons that Can Help’ article written by Carrie Schwab-Pomerantz, 3/4/2019.
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