How to Teach Your Kids About Money and Investing: A Guide for Parents

How to Teach Your Kids About Money and Investing: A Guide for Parents

Money is a part of our everyday lives, whether we like it or not. We use it to buy things, to save for the future, to invest in our dreams, and to deal with unexpected situations. Money can also be a source of stress, confusion, and frustration, especially if we don’t have enough of it or don’t know how to manage it well.

That’s why it’s important to teach our kids about money and investing from an early age. By doing so, we can help them develop the skills and habits that will enable them to make smart and responsible financial decisions throughout their lives. We can also help them avoid some of the common pitfalls and mistakes that many adults face when it comes to money matters.

But how do we teach our kids about money and investing? What are the best ways to make it fun, interesting, and relevant for them? And what are the appropriate topics and activities for different age levels?

In this blog post, we will answer these questions and provide some practical tips and examples for parents who want to raise financially literate and savvy kids. We will also share some of the benefits and challenges of teaching kids about money and investing, and some of the resources and tools that you can use to support your efforts.

Let’s get started!

Why Teach Your Kids About Money and Investing?

Before we dive into the how, let’s talk about the why. Why should we teach our kids about money and investing? What are the benefits of doing so?

Here are some of the reasons why financial education is important for children and youth:

·         It helps them develop a positive and healthy relationship with money. Money is not something to be feared, hoarded, or wasted. It is a tool that can be used to achieve goals, to help others, and to enjoy life. By teaching our kids about money and investing, we can help them appreciate the value of money, the importance of saving and spending wisely, and the joy of giving and sharing.

·         It helps them acquire essential life skills. Financial literacy is not just about knowing how to count, budget, or invest. It is also about learning how to plan, set goals, make choices, solve problems, and deal with risks and uncertainties. These are skills that are useful not only for managing money, but also for navigating other aspects of life, such as education, career, and relationships.

·         It helps them prepare for the future. The world is changing rapidly, and so are the financial opportunities and challenges that our kids will face. They will need to deal with more complex and diverse financial products and services, more global and digital transactions, and more personal and social responsibilities. By teaching our kids about money and investing, we can help them adapt to these changes and take advantage of the opportunities that they offer.

·         It helps them build wealth and achieve financial independence. Money is not an end in itself, but a means to an end. By teaching our kids about money and investing, we can help them understand how money can help them pursue their passions, fulfill their potential, and create their own destiny. We can also help them avoid some of the common financial pitfalls that can derail their dreams, such as debt, fraud, and inflation.

How to Teach Your Kids About Money and Investing?

Now that we know why we should teach our kids about money and investing, let’s talk about how. How do we make financial education fun, interesting, and relevant for our kids? How do we tailor it to their age, interests, and needs?

Here are some general tips and principles that can guide us in teaching our kids about money and investing:

·         Start early and be consistent. Financial education is a long-term process that should start as early as possible and continue throughout the school years and beyond. Research shows that financial habits and attitudes are formed by the age of seven, so it’s important to expose our kids to money concepts and experiences from a young age. It’s also important to be consistent and reinforce the lessons and skills that we teach them over time.

·         Use everyday situations and examples. One of the best ways to teach our kids about money and investing is to use the opportunities that arise in our daily lives, such as shopping, paying bills, saving for a trip, or donating to a cause. These situations can help us illustrate and explain the financial concepts and principles that we want our kids to learn, such as income, expenses, budgeting, saving, investing, and giving. They can also help us show our kids how money affects and is affected by other aspects of life, such as values, goals, and emotions.

·         Involve your kids in financial decisions and activities. Another effective way to teach our kids about money and investing is to involve them in the financial decisions and activities that we make and do as a family, such as planning a budget, opening a bank account, choosing a financial product, or investing in shares. This can help our kids develop a sense of ownership and responsibility for their money, as well as a sense of curiosity and confidence in their financial abilities. It can also help us model and share our financial knowledge, skills, and habits with our kids.

·         Make it fun and playful. Financial education doesn’t have to be boring or intimidating. We can make it fun and playful by using games, stories, songs, videos, and other creative tools and methods that can capture our kids’ attention and imagination. We can also use humor, praise, and rewards to motivate and encourage our kids to learn and practice their financial skills. The key is to make financial education enjoyable and engaging for our kids, so that they will want to learn more and do better.

·         Make it relevant and realistic. Financial education should not be abstract or hypothetical. It should be relevant and realistic to our kids’ lives, interests, and needs. We can do this by using examples and scenarios that are familiar and meaningful to our kids, such as saving for a toy, buying a gift, or starting a business. We can also do this by setting realistic and achievable goals and expectations for our kids, such as saving a certain amount, earning a certain return, or donating a certain percentage. The goal is to make financial education practical and applicable for our kids, so that they will see the value and impact of their financial decisions and actions.

What to Teach Your Kids About Money and Investing?

Finally, let’s talk about what. What are the topics and activities that we should teach our kids about money and investing? What are the appropriate levels and methods for different age groups?

Here are some suggestions and examples for parents who want to teach their kids about money and investing:

Ages 3-5: Introduce Money and Its Basic Functions

At this age, our kids are curious and eager to learn about the world around them, including money. They can recognise and name different coins and notes, and they can start to understand the basic functions of money, such as exchanging, saving, and spending.

Here are some of the topics and activities that we can use to introduce money and its basic functions to our kids:

·         Money recognition. We can help our kids learn to identify and name different coins and bills, and to sort and count them by their value. We can use real or play money, or we can make our own money using paper, cardboard, or stickers. We can also use books, songs, or videos that feature money and its symbols.

·         Money exchange. We can help our kids learn to use money to buy and sell things, and to understand the concept of price and value. We can play store or market with our kids, using real or play money and items, or we can take them to a real store or market and let them observe and participate in the transactions. We can also use books, games, or apps that simulate money exchange, such as [Little Critter: Just Saving My Money] or [Kids Money].

·         Money saving. We can help our kids learn to save money for something they want or need, and to understand the concept of delayed gratification and goal setting. We can give our kids a piggy bank or a jar, and encourage them to save some of their money, such as their allowance, birthday money, or coins they find. We can also help them set a savings goal, such as a toy, a book, or a trip, and track their progress. We can also use books, stories, or videos that illustrate the importance and benefits of saving, such as [The Ant and the Grasshopper] or [One Cent, Two Cents, Old Cent, New Cent].

·         Money spending. We can help our kids learn to spend money wisely and responsibly, and to understand the concept of needs and wants and trade-offs. We can let our kids make some of their own spending decisions, such as choosing a snack, a toy, or a gift, and guide them to compare the prices, quality, and value of the items. We can also help them learn to prioritise their spending, such as buying the essentials first, and to avoid impulse buying. We can also use books, stories, or videos that show the consequences and alternatives of spending, such as [Alexander, Who Used to Be Rich Last Sunday] or [The Berenstain Bears’ Trouble with Money].

·         Money giving. We can help our kids learn to give money to others who are in need, and to understand the concept of generosity and gratitude. We can encourage our kids to donate some of their money to a charity, a cause, or a person that they care about, and to learn about the impact and benefits of their donation. We can also involve our kids in fundraising activities, such as selling lemonade, cookies, or crafts, and donating the proceeds to a chosen organisation. We can also use books, stories, or videos that inspire and celebrate giving, such as [The Giving Tree] or [The Rainbow Fish].

Ages 6-10: Explore Money and Its Various Aspects

At this age, our kids are more aware and interested in the world around them, including money. They can understand and perform basic arithmetic operations with money, and they can start to explore the various aspects of money, such as earning, saving, spending, and investing.

Here are some of the topics and activities that we can use to explore money and its various aspects to our kids:

·         Money earning. We can help our kids learn to earn money by doing chores, selling goods or services. We can also help them understand the concept of income and its sources, such as wages, salaries and dividends. We can also help them learn about the Australian currency and financial system, such as the role of the Reserve Bank of Australia, the Australian dollar, and the financial markets.

·         Money saving. We can help our kids learn to save money for short-term and long-term goals, and to understand the concept of compound interest and its power. We can also help them open a bank account and learn how to use it, such as checking the balance, making deposits and withdrawals, and reading the statements. We can also help them compare different savings products and services, such as interest rates, fees, and features.

·         Money spending. We can help our kids learn to spend money wisely and responsibly, and to understand the concept of opportunity cost and its implications. We can also help them learn to budget and track their income and expenses, using tools such as spreadsheets, apps, or websites. We can also help them learn about the Australian tax system and its components, such as income tax, goods and services tax.

·         Money investing. We can help our kids learn to invest money for long-term growth and security, and to understand the concept of risk and return and their trade-offs. We can also help them learn about the different types of investments and their characteristics, such as cash, shares and property.

Ages 11-16: Expand Money and Its Various Aspects

At this age, our kids are more independent and responsible, and they have more opportunities and choices to earn, save, spend, and invest money. They can also understand more complex and abstract aspects of money, such as interest, inflation, diversification, and taxation.

Here are some of the topics and activities that we can use to expand money and its various aspects to our kids:

·         Money earning. We can help our kids learn to earn money by doing chores, selling goods or services, or finding a part-time job. We can also help them understand the concept of income and its sources, such as wages, salaries, dividends, and capital gains. We can also help them learn about the Australian currency and financial system, such as the role of the Reserve Bank of Australia, the Australian dollar, and the financial markets123.

·         Money saving. We can help our kids learn to save money for short-term and long-term goals, and to understand the concept of compound interest and its power. We can also help them open a bank account and learn how to use it, such as checking the balance, making deposits and withdrawals, and reading the statements. We can also help them compare different savings products and services, such as interest rates, fees, and features.

·         Money spending. We can help our kids learn to spend money wisely and responsibly, and to understand the concept of opportunity cost and its implications. We can also help them learn to budget and track their income and expenses, using tools such as spreadsheets, apps, or websites. We can also help them learn about the Australian tax system and its components, such as income tax, goods and services tax, and fringe benefits tax.

·         Money investing. We can help our kids learn to invest money for long-term growth and security, and to understand the concept of risk and return and their trade-offs. We can also help them learn about the different types of investments and their characteristics, such as shares, bonds, property, and superannuation. We can also help them learn about the principles and strategies of investing, such as diversification, asset allocation, and dollar cost averaging.

Ages 16-18: Apply Money and Its Various Aspects

At this age, our kids are more mature and independent, and they have more responsibilities and challenges to manage their money. They can also apply their financial knowledge and skills to real-life situations, such as planning for further education, finding a job, or moving out.

Here are some of the topics and activities that we can use to apply money and its various aspects to our kids:

·         Money earning. We can help our kids learn to earn money by finding a full-time or part-time job, starting a business, or investing in the stock market. We can also help them understand the concept of income and its taxes, such as income tax brackets, deductions, and credits. We can also help them learn about the Australian labour market and its trends, such as the unemployment rate, the minimum wage, and the skills in demand.

·         Money saving. We can help our kids learn to save money for long-term goals, such as further education, buying a car, or travelling. We can also help them understand the concept of inflation and its effects, such as the loss of purchasing power and the need for higher returns. We can also help them compare different savings and investment products and services, such as term deposits, bonds, managed funds, and exchange-traded funds.

·         Money spending. We can help our kids learn to spend money wisely and responsibly, and to understand the concept of debt and its costs, such as interest, fees, and penalties. We can also help them learn to manage their credit and debit cards, loans, and mortgages, using tools such as calculators, apps, or websites. We can also help them learn about the Australian consumer rights and protections, such as the Australian Consumer Law, the Fair Trading Act, and the National Credit Code.

·         Money investing. We can help our kids learn to invest money for long-term growth and security, and to understand the concept of diversification and its benefits, such as reducing risk and increasing returns. We can also help them learn about the different types of investments and their risks, such as shares, property, commodities, and cryptocurrencies. We can also help them learn about the principles and strategies of investing, such as value investing, growth investing, and passive investing.

To conclude, teaching our kids about money and investing is a vital life skill that can help them achieve financial wellbeing and independence. By starting early, using everyday situations and examples, involving our kids in financial decisions and activities, making it fun and playful, and making it relevant and realistic, we can help our kids develop a positive and healthy relationship with money, acquire essential life skills, prepare for the future, and build wealth and achieve their goals. We hope this blog post has given you some useful tips and ideas on how to teach your kids about money and investing. For more resources and tools, you can visit the following websites:

·         Moneysmart.gov.au - A website by the Australian Securities and Investments Commission (ASIC) that provides free and impartial guidance and tools on money matters for Australians of all ages and stages of life.

·         Banqer - Started with a vision to teach one student about money, and since then Banqer helped financially educate over 300,000 students. The impact they have had through their innovative approach to teaching critical life skills has been celebrated externally.

This blog contains information that is general in nature. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Cobalt Advisers Pty Ltd nor their directors, employees or authorised representatives, do not give any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.