Recently I walked into our local newsagent and, on cue, my four-year-old son began asking for the chocolate bars and that all-important fluffy keyring. I reminisced of those good-ol’ days when I could brush off these requests with the “I have no money in my wallet,” line. But these days, his big sister jumps in reassuring us that, “it’s fine Mum, let me tap your card - I know how to do it!”
It’s a familiar scenario for many parents of young (and not so young) children. So, how do we teach our children the value of money in an age of cashless payments, online shopping and in-app purchases? We’ve all read the news stories of the tweens and teens who have racked up thousands of dollars on their parents’ credit cards linked to downloaded games, with children not necessarily understanding money is not a virtual, automatically replenishing Tim Tam packet.
When is the right age to explain to them how before we can tap our debit cards or click ‘buy’ while playing on the iPad, we actually have to work hard to earn the money and manage it responsibly?
Many experts agree teaching our kids from an early age how to manage money could help prepare them for the financial ups and downs of adulthood. However, not seeing physical money exchanged for goods and services may make it harder for children to understand what things cost and how money works. In the UK, recent research from the University College London found physical money was an alien concept to many children, and some primary school students had difficulties working out the correct change needed because the majority of payments they see are made using a card.
If you would like to arm your child with the skills and knowledge to successfully manage money, one of the most important things you can do is to be a role model and talk to them about how to budget and save money.
According to the Financial Planning Association of Australia, from the age of about three many children can start grasping the concept of money - where it comes from, why we need it and what it takes to earn it. It’s an ideal age to start explaining the basics to them. You may like to take your kids along to do the weekly grocery shopping and find lower-priced versions of similar products, look for the specials and compare prices together. You could also think about encouraging your child to watch you pay the household bills, such as your home loan and electricity, to help them understand that these aren’t provided free of charge.
You might also like to sit down with your child and plan how you’ll save up for big-ticket items such as holidays or birthday parties. This could involve your child creating a budget and deciding how you can save together. If they are playing a game on the iPad and an option pops up to purchase an add-on through the app, involve them in talking through whether that purchase is worth it, and if so, it could be worth deducting it from their allowance so that the purchase feels real for them.
Sometimes nothing helps kids understand what money is worth more than allowing them to get hands on with making their own purchases. When my daughter turned six I gave her $20 in an envelope as part of her birthday present and sent her off with her older cousin to go shopping. The deal was she was able to pick how she wanted to spend it (the only rule being no junk food was allowed), so that she could get a better sense of the value of money. She had an absolute ball and learned a lot in the process.
The choice to give pocket money is a personal one that will depend on what suits your family’s situation, however, my view is it can help children better understand the value of money from a young age. Giving younger children physical coins they can separate into jam jars or piggy banks for either saving, spending or donating can help them visualise more easily how their savings are building. Once these systems are in place and your child hits their savings target you could go with them to set up their own bank account to deposit their hard-earned cash so they can begin to understand that money in the bank is money that has been earned.
Some families are opting to give their tweens and teens pocket money using apps and prepaid debit cards. These can be a great time saver for parents but, more importantly, the apps could be a useful tool to help children learn how to save, organise and track their spending. Spending limits can be set, savings goals made, and purchases can be viewed in real time.
Helping our children value digital money as much as the gold coins they can feel in their hand doesn’t have to be overly complicated. Talking openly about our spending decisions, savings goals and family budgets is a good place to start. I also try to make sure my kids understand that tapping a card or clicking ‘buy’ in an app impacts our family’s finances in the same way as giving a cashier a five dollar note. In the meantime, I’ll be sure to have some cash on me next time I need to pop to the shops with my two little ones so they can see how much that chocolate bar and those fluffy keyrings really cost.
By Nina Tovey
Nina is a writer, proud mama of two and the Editor-in-Chief of Canstar, Australia’s biggest financial comparison site. Nina was the senior journalist for wellness magazine Wellspring and has ghostwritten pieces for some of the world’s most popular blogs, newspapers and websites.