The importance of children’s financial literacy

The truth is, adulthood is rife with financial challenges. The more prepared your children are, the better. So from teaching money management to children to making them understand the true value of money is a vital task for their parents.

Your role as a parent

As a parent, you play a vital role in helping your child establish positive habits around money – namely earning, budgeting, saving and spending. Often, this is based on your own personal experience with managing money. Fortunately, you don’t have to be a financial genius to teach your child good skills. It can be as simple as involving them in very basic purchasing decisions and budgeting from a young age.

The other important point to make is that, as they grow, their financial awareness and needs will change as they progress through primary school and into high school. We’re committed to giving you the right information and tools to guide your child’s financial journey – and support you along the way.

Understanding where money comes from

With the emergence of cashless transactions, children don’t often see physical cash changing hands in their parents’ day-to-day transactions. In turn, they might struggle to understand where money actually comes from – that it needs to be earned. It’s important your kids understand that the plastic card in your purse or wallet is not an endless source of money. Here’s what you can do.

Introduce ‘pocket money’

Doing this early on is a great idea. Whether it’s a ‘cash’ reward for doing chores, or some other task – it’s a fantastic way to help your child understand how money is earned and the tangibility of physical cash. In other words, it will make it easier for them to establish the link between cash and digital money down the track.

Use cash

You can do this for things like groceries or snacks, just so that your child can see the transfer of physical cash to pay for things. At the checkout, explain to them that having a job and going to work is how you earn money, for example – in the same way that they earn pocket money for doing chores – which allows you to then buy groceries for the family.

The value of money – needs versus wants

For children earning pocket money, understanding what their money can and can’t buy is an important one. Here, the lesson lies in your child realising the implications of their spending choices. Kids learn a lot about money through observation, chiefly your spending behaviours, decisions and conversations.

If they see you making impulsive purchases or not considering the price of a particular product, they may struggle with developing their own good spending habits later in life. It’s up to you to be proactive. When you’re out shopping, try saying things like: ‘I don’t think we really need this’, or ‘The price is a little high, I might see if I can find it cheaper somewhere else’. In other words, find opportunities to teach them to compare one product to another, as well as the difference between the cost of a particular product and the value of the product.

The workings and benefits of a bank account

Kids love piggy banks. And while using one is a great way to kick things off, managing money wisely requires more sophisticated tools in the real world. The whole experience of going into a bank with your child and opening an account can have a huge impact. You can talk them through depositing and withdrawing money – and the channels they can use to transact their money.

The same goes for taking them into a branch and depositing their pocket money, transferring it via Internet Banking and NAB app, or getting them to check their account balance. Next time you pay a bill online or via your smartphone, involve your child and show them how the money gets debited from the balance. This will help them to understand terms such as like debit, credit, balance, transactions, and ATM. Chances are they’ll find the whole process fascinating.

Budgeting and saving

You should also consider putting your child in charge of their own money early on (with guidance of course). This can be a fantastic way to teach them the importance of budgeting and saving. Let’s break it down.

Budgeting

Say the school holidays are coming up and your child’s friends are planning an outing on one of the days. You could help them estimate the total cost of the excursion and how much spending money they’ll need on the day. Then, start budgeting for it out of their weekly pocket money in the lead-up to the holidays.

Saving

Chat about how a savings account can help your child reach their goals faster – showing them the importance of separating their ‘savings’ from their regular transactions. They can also name their savings account according to what they’re saving for, and you can help them set up automatic transfers to their savings account so they can put money away regularly.

While your child may find the process frustrating and slow, it’s important that they understand the value of money. It’s a good idea to come up with creative ways for your children to earn some extra cash, instead of ‘topping up’ their account.