Around a fifth of 15-year-olds in Australia do not have basic financial literacy, according to a new financial literacy assessment results report.
While in no way is debt solely dependent on poor money management, it can certainly be exacerbated by it and it is never too early to learn about the importance of sound financial strategy. Follow these tips and ensure the process is as fun as it is informative!
Money somehow seems to be a slightly taboo subject in many homes, with few parents discussing money matters with their children.
While children should certainly not be stressed about adult issues like debt, there is no harm in talking about things like interest rates, loans, mortgage payments, and the like. It is important for children to understand what credit is and how it works, and one way to do so is to understand how, for instance, a mortgage is paid back.
In very simple terms, parents can explain that the type of mortgage they obtain can very much determine how much they will end up owning in the long run and how long they will be expected to pay.
If they have made any investments, they should also feel free to talk about this at the dinner table, so that words such as ‘capital’, ‘interest’, ‘profit’, ‘revenue’, ‘equities’ etc. don’t sound quite so alien as they can to those in households where finances are never discussed.
Building Good Credit Habits
Parents can teach children about credit by giving them a weekly allowance and encouraging them to save. If a child is yearning for a toy, game, or item of clothing, parents can sit down and show kids how much more they would be paying if they had to borrow money for that item, applying typical interest rates charged on credit cards.
Kids can then make their own calculations (using online calculators if desired) to understand in very real terms what money ‘upfront’ (i.e. credit) can cost them in the long run. Older kids can compare different credit cards you have to see what you would end up paying for the same item, using each card.
Finally, if you have ever asked for a professional credit report, highlight key areas to your older child. Show them how errors in credit reports can occur and be fixed, which is why staying up to date on your financial statements, loan payments etc. is key.
Technology that Works
Children growing up in this millennium are firmly attached to technology, so connecting with them through this means is a great way to hone financial literacy. Let them see you using apps like Mint or PocketGuard to identify any potential items/habits you may be spending too much money on.
]Download financial literacy apps for children – including Savings Spree, Renegade Buggies, and Bankaroo.These teach children about terms like short- and long-term saving, the risk of impulse purchasing, and even the basics of investment.
According to research by financial experts T. Rowe Price, parents who talk about financial topics with their children at least once a week are significantly more likely (64% vs 41%) to have kids who are savvy about money. Debt is a reality that many youths will have to face practically from the time they graduate, so being comfortable with terms like interest and capital is vital.
Connect with children through technology, conversation, and time. Be there to answer pertinent questions and if you have to, ask for professional advice to ensure your children do not embark upon risky financial transactions.