There’s a more widely understood notion now that the way we talk to children in their formative years literally shapes the way their brain synapses later in life. So, following that vein of thinking, it makes sense that your language and ethos around money would have a similar effect. When it comes to what we’re teaching our own brood, here’s our top 5 financial lessons for kids to learn early.
Investing is a concept, not a hard and fast rule.
If starting to invest in shares is difficult even for some adults, then safe to say it’s going to be impossible for kids – and given they feed off of your energy, it’s probably best to fly solo on the shares game until you’re experienced enough to teach it confidently.
Plus, while you might have great intentions of investing their pocket money – like in shares, for example – if the brokerage fee is eating into half of the amount, you actually run the risk of disheartening them so much in the process that they’re scarred for life. So, remember this: investing is a concept, not a hard and fast rule. That means that for young kids, and small amounts, the theory is way more critical than the practice.
Investing can mean putting their money in a sub-account titled ‘Raf’s Investments’, and Mum and Dad adding “compound interest” at the reserve interest rate every month, which they get regular visibility on.
If they decide to take the money out, for example, the same rules apply as on a high-interest savings account – no interest earned, and a small withdrawal penalty which will be deducted from the capital they can access.
We want to encourage our kids to let their money grow by letting them see what happens if they do, but at the same token, if they take it out, it’s really up to them. Money exists to be spent and provide security, so sitting on it forever can teach them equally unhealthy habits around hoarding vs spending. Right now, the ultimate goal for our kids is to feel confidence and safety from saving, and joy from spending.
Teaching them how investing works safely will help them become familiar with what growth looks like in a healthy and consequential way. Start early, however you can, and add little by little.
Diversity is the spice of life.
The benefit of diversification, to me, is a universal concept that extends across most parts of life. Diversity of thought, opinion and experience translates to better outcomes across business, industry and community. Where it’s especially beautiful is your financial world.
My husband and I work hard to maintain a strong spread across all bases. We’re aiming for a 50/30/10/10 split in our investments consisting of super safe, safe, interesting and play/speculative. The loss and gain outcomes of these investments are vastly different so, teaching our kids this staple market concept – that money moves in different ways depending on the way it’s invested – is important.
Super safe can mean in a high-interest savings account or term deposit (or the option above, like a sub-account attached to a standard account where you manage the interest). Something more high-risk can mean shares, if you’re confident enough to dedicate a portion of their money to it (and they want to) or providing a small portion to invest in a business idea, or a friend’s venture (with clearly agreed returns).
It’s important for kids to see that a portion of their money doesn’t fluctuate and keeps value to build consistency and maintain financial safety. Then to get them excited and prepare them for the real world, a portion can move in a much more unexpected way depending on the market and their choice – but that’s okay. It’s part of the fun and learning about growth and corrections without dampening their joy and sucking all the fun out of it.
The language we use around money is important.
No matter what you believe when it comes to the history of creation, it’s indisputable that we’re all energy and organic matter. Because of that, there’s a logical conclusion that the language we use around money matters. Can it even help us manifest certain financial outcomes? I certainly believe so.
When it comes to our son, we use the phrase “we will always have enough” in everyday language. Without over-complicating anything, we inject positivity in our vernacular wherever we can so that he always knows that our attitude about money is balanced and calm. Ultimately, money is not who we are, it’s what we have – and it comes and goes.
Another one I love is “you are my best investment”. I can’t lie – it’s infuriating when you’ve paid for an expensive activity upfront, you turn up and they don’t want a bar of it. For example, swimming lessons – my son sometimes gets in the water, and sometimes doesn’t. At $25 a lesson, it’s a sting when we drive out and sit on the sidelines just for shits and giggles. Where my initial reaction is to call out how much money I’ve spent on it (aka him), I have to honour that it’s his choice ultimately, and it’s not a burden to pay for him.
Instead, I gently talk to him about how learning to swim and being safe in the water (especially as we live by the coast) is an investment for me and his daddy. Because it’s true – he is an investment for us, and the best one I’ve ever made.
Our wealth is designed to be shared.
At almost three years old, our baby is no longer a baby. He’s turning into a little boy, and to welcome in this new stage of his life, we recently decided to pay forward all of his baby stuff. That meant no more cot, change table, silk rocking chair, muslins or cotton-soft baby sleep suits.
We wanted to give this stuff to mothers who needed them for their babies and who weren’t in a position to purchase them. Everything was still in really good condition, and many things were brand new and unopened – like the electric breast pump still in its box and the hand-knitted hats and mittens. So, I listed some on community pay-it-forward groups, and donated the rest to local women’s shelters.
What I didn’t anticipate was how upset my son would get as we started clearing these things out. I completely misjudged the sentimental side of these items for him. But, letting go of things when there’s no longer a need for them is the right thing to do. So, we started talking about some of the kids who’d be using these things, and why they needed them. I would explain “some of these kids are cold at night and don’t have a nice blanket, so your blanket will help them feel warm and cuddly, like how you feel.” It really helped, and sowed a seed that we’re still talking about now even months later.
Looking back, I think it was actually a really impactful formative experience for him. He still mentions the kids who are playing with his stuff, sleeping in his cot and wearing his Wondersuits – and has begun to articulate how nice he feels that they have it. Obviously he’s still young and so his comprehension is limited, but it’s a philosophy we’ll follow as he continues to grow and we continue to give: to show him what positive impacts his generosity makes.
You can have anything, but not everything.
This one is super important, and my husband’s personal favourite philosophy.
If we’re doing our job right, we’re teaching our children about the benefits of moderation and personal discipline – you can be crazy and a kid, but you also need sleep to help you restore yourself. You can play freely, but your contribution to the home is valuable and so cleaning up your toys is a key part of that process. You can choose how much you eat but I’m going to help you understand what food choices are the best for your body in how you grow.
Personally, I think that this leans heavily into money education as well. While money is abundant, it is also finite. That means while the flow of money is continuous and never ending in how it comes and goes from us, how we use it is a personal responsibility that we must honour and take seriously.
I like the phrase “money is our friend. It means we can have food, and a house, but it also helps us do fun things like XYZ.” To help that concept land, I relate spending money to things he knows and enjoys, like going to cafes and animal sanctuaries. In doing so, I remind him that we can’t do everything we want all the time because those things cost money.
I also let him pay for things using cash (where he is given the lesser change in return), and if he’s asking for things repetitively, I’ll explain how the resource of money is finite. For example, “oh, we actually already spent our budget today on <that thing earlier>. So until we have some more money, we will have to wait,” or “we’ve got this much money, which means we can either have this or that. What would you like more?” This concept also extends to things he brings with him. For example, if we go to the shops, he can bring one toy with him, and I hold the line firmly.
Just like money education is never a perfect art with adults, it isn’t for children, either. At the very least though, you’re setting them up for a life of financial literacy, security and longevity — and that’s a wonderful thing.