By Kym Tucker
There have been some alarming stories of teenage debt, youth bankruptcy and easily obtainable finance. As parents how can you promote financial awareness and independence in your children?
Be aware of what you are teaching
What are your financial beliefs? Did you grow up believing the only way to obtain money is to study or work hard? That money doesn't grow on trees? To be wealthy is selfish or means sacrificing happiness? Whatever you believe you will be teaching your values to your kids through your language and actions (usually without realising).
Your financial choices are based on what you deem to be important and the related consequences which impact how you prioritise your funds. Expose your kids to all aspects of your day to day and larger financial purchases, not necessarily the dollar details but the mechanics. Discuss it openly, along with possible variables such as increasing income, reducing other expenses or saving.
When using credit cards explain there is a predetermined value the bank has agreed to lend you. After a contract is signed outlining the bank's full terms and conditions they send regular statements and if not paid in full a penalty is charged.
When borrowing for a home or car explain you make regular repayments which include interest, so the total cost of the purchase is more than the original price. You don't have to change what you do, just teach the logistics so your kids can make decisions based on what they consider is fair exchange to develop their own priorities and choices.
For many people earning extra income entails working harder or for longer hours. Working hard can develop determination, focus and persistence which are valuable lessons, but our kids want to be fulfilled and enjoy what they do. So siphon these lessons around their interests.
Many of today's wealthy Australians develop an early awareness of their purpose or niche, utilise their natural or developed skills, demonstrate passion for what they do and seize opportunities in a changing environment.
What natural skills and passions has your child developed as they have grown? When you see glimpses, hone in on them, support and encourage their development, help them research what they enjoy and ask a lot of questions. You don't have to agree with their conclusions, just support the process.
Involve your kids when planning for holidays or special events. Setting goals, planning and managing money are vital lessons and help determine what's important: priorities, wants and needs. When your child wants the latest new product trend, have them research the cost and either plan how to raise the money or determine how long it will take to save. Allow them to experience the consequences of their decisions and actions. How we manage our money is more important than how much we have.
Books, seminars and wealth programs advocate 'pay yourself first' which is holding a portion of your income in savings. This is a vital habit to encourage your kids to develop so they can experience growth with compounding interest and the success of diligent saving. When you give pocket money or pay for chores, set up a regime for them to save a minimum portion, such as 10%. As an incentive to start you may like to match what they save. Choose an easy routine, such as separate money boxes or jars for younger children and separate bank accounts for older children to match their saving goals. Choose an online saving account to earn a little more interest and you may choose to reward them with bonus interest as they reach their goals.
Sit down with your kids and work out how much they need to live on. This discussion would need to determine your own budget, age appropriateness and expectations of you and your child's requirements. For example they could buy their own clothes, gifts and mobile phone cost while you continue to provide school costs, holidays and household items. Negotiate variables raised to cover all possibilities and enhance success.
Once negotiated, write out clear details and expectations, such as what happens if the agreement is broken, as kids will quickly find loop holes. When complete ensure all involved sign the agreement. This is a great way to support reading and understanding contracts before signing.
Most new projects have teething problems, so give your kids a break if they run into strife and use it as a catalyst for discussion and solutions rather than chastising or lecturing. Act consistently with your contract as your kids won't attempt to spend within their budget if you are constantly supplementing their allowance. Once they have established a pattern, rewards can promote gratitude and continued success.
Financial independence is usually achieved from more than one source. A core activity utilising skills could be supplemented with one or more passive income streams. Finding a way for kids to be paid to do what they love is more efficient and satisfying. Have a brainstorming session with family or friends. Accept anything expressed, sometimes it is the simple or even silly ideas which can be developed. Young entrepreneurial minds will have plenty of suggestions if you ask, listen and value their responses.
Rather than dipping into your pocket, agree to lend a negotiated amount, with an interest rate and repayment schedule. Ensure it is written down, maybe in a simple table. Include consequential payment defaults such as extra interest or late fees.
This suggestion requires discipline and won't work in all families, so implement only if you know you will adhere to it, or your kids will quickly learn skills for avoiding responsibilities and breaking agreements, neither of which will work with lending organisations.
We often learn valuable lessons by failing, so don't be too quick to jump in and protect your kids from their experiences. Build a safety net, be ready to catch them and discuss their experiences in a non-judgemental way so they learn from their mistakes. Mastering financial concepts while still living at home may prevent costly lessons as adults.
Kym Tucker is a parent, teacher, business consultant and life coach who develops empowering programs to raise awareness for parents and businesses. www.journeyofdreams.com.au
