Do you remember the first money lessons you got from an influential adult in your life? Whether it was putting money away with school banking or having to decide what item at the toy store you really wanted, these financial lessons stay with us for life.
Kickstart your children’s financial future with these timeless money lessons from ‘Get a Financial Life’ author Beth Kobliner.
The benefits of compounding interest
Not so long ago, if you had a savings account, you would have a passbook that got updated every time you went into the bank. It was exciting to see how much your regular savings quickly added up, especially with the addition of interest from the bank.
Introduce your children to the excitement of compound interest. While they are unlikely to have a passbook, they can check their balance online. For example, you can set up a monthly time to show your children how their savings account has changed, thanks to interest.
Getting money ‘for free’ can be a great motivator in encouraging your kids to save their money and set up their future wealth.
Understanding the student loan – or credit card
Talk to your teenagers about debt and show them how interest on borrowed money can add up over time. Even if the payments are affordable, for example, buying now to pay back later could affect their ability to save money for a bigger purchase (like a house).
As for student loans, it’s a good idea to show your children how repayments may affect their future income. While the loan is interest free if they stay in New Zealand, with repayments at 12% of gross income over the threshold, it could take a big chunk of their future earnings, and affect their ability to meet other commitments.
But remember, rather than focus on ‘debt is bad’, it’s important to learn how to manage debt without turning it into a long-term burden. At the very least, teaching your children about the value of an emergency fund, without relying on credit cards to meet everyday living costs, may help them make the most of the money they have available.
You can’t always get what you want
Life often means having to make choices and this is an important lesson to learn at any age.
A simple approach is to involve your children in making decisions at the supermarket. Tell them how much money you have to spend, and then let them decide which cereal, or which fruit to buy, rather than trying to accommodate all their wants. Helping your kids make decisions and prioritise their spending will be a valuable lesson when they start being financially independent and in charge of their own purse strings.
The balance between now and later
Similar to having to make choices about what to spend money on, is also waiting to spend that money. We live in the age of ‘instant’; whatever you want to buy is available at the tap of a few buttons through the power of the Internet. But delayed gratification is also important.
The reality is, sometimes we need to take on debt to achieve our goals faster. Other times, we can wait longer and save up. So help your children set goals and work out a plan for how to get there. Learning about delayed gratification can help them avoid relying on too much credit to fund their lifestyle in the future.
Financial lessons learned in youth can stay with you for a lifetime. Make sure the lessons your children learn will help them on the path to financial prosperity. And in the meantime, feel free to talk to the team at AA Finance about your personal loan needs, Contact us on 0800 500 555, seven days a week between 9am and 5pm. We’re here to help.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.