In a world where financial literacy is trending, Australia is leading the list of countries that need to ramp up financial education and encourage family involvement in the learning process. The Household, Income and Labour Dynamics in Australia (HILDA) survey revealed that almost 50 percent of Australian households struggle with poor financial literacy.
Those with low financial literacy were shown to have worse financial health, were more likely to experience financial stress, and had a lower likelihood of saving. Yet, financial education involves much more than how to spend their money. Ethical finance centres on not just how to spend your money, but knowing whether your financial decisions are responsible ones.
The best way to combat this is to provide ample opportunities for your child to learn about ethical financial decision as soon as possible so that it becomes the new norm.
Start With Mindful Spending: Encourage Comparison And Thrifty Spending
Over 70 percent of Australians say they overspend, which leads to racking up high levels of debt. Interestingly, the category where overspending mostly occurs is discretionary spending i.e. things Australians do not necessarily need but like to have such as toys, socialising, and technological gadgets. For young people, keeping up with this behaviour modelled by their parents can prove to be a disastrous start to their financial journey as an adult.
Instead, try teaching your child to avoid mindless spending and socially influenced purchases. When it comes to on-trend purchases such as the latest toy or gadget, encourage your child to look around and use comparison shopping for cheaper models.
Also, speak to your child about the benefits (both financially and environmentally) of second-hand buying. For instance, if your child wants to go on a shopping trip for new clothing, why not suggest visiting second-hand clothing websites or stores as an alternative.
Another great idea is spending time with your child making a comparison list of alternatives to purchases they want to make and teaching them what to look for when making a decision on the better alternative (shelf life, battery, price, etc).
Encourage Ethical Financial Planning And Decision Making
Encouraging financial decisions such as ethical investing or supporting ethical brands when spending can also help children become more conscious consumers when they are older. In addition to teaching them the need to implement budgeting, help them research ethical banking institutions or investment opportunities when allocating their funds to save or investments.
This is a great way to begin the conversation about ethical banking or investing in Australia and teaching them to look beyond the ‘best price’ criteria. For instance, in markets like Australia where the concept of sustainability is more established, it would be easy to spot ethical banking institutions or investment options that align with more conscious personal values such as stock funds that avoid financing firearm companies or animal cruelty.
Don’t stop at just the list of institutions either. Instead, encourage your child to dig into their backgrounds and find out initiatives being supported by these institutions and just why they are on the ethical banking/investing list.
For example, new community savers account holders at Bendigo Bank can support local organisations like Oxfam Australia and the Royal Children’s Hospital Victoria by allowing a percentage of their interest earned to be donated.
Impose A Cooling Off Period For Pocket Money Purchases: Do I Really Need That?
Impulse buying is an often clear cut and commonly cited threat to financial wellness for many Australians. With Australians owing over 45 billion in credit card debt and 77 percent having impulse buying habits on their mobiles, gaining control over your spending habits is a crucial financial foundation to teach your child.
A great way to encourage a second thought about purchases and whether they are a good idea is to implement a standard waiting period for any purchases your children express interest in. For adults, the cooling-off period can be around 30 days but for children, you can set it for a lower time frame: at least 24 hours.
While you want to teach and encourage your child to be independent with money, this can also teach them self control- another key aspect of great ethical personal finance management.
As the world becomes more conscious of the ethical impacts of their way of life, teaching our children the art of ethical financial decisions means you are equipping them with key tools to manage their money successfully and morally.