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The Sunday Age

Sunday February 20, 2011

Nicole Pedersen - McKINNON

Want your children to learn about the value of money and saving? The sooner you start teaching them, the better. MY POOR son. For his first birthday did I get him a train? A Wiggles DVD? Even some bubble wrap? No - I gave him a piggy bank.In my defence, it is a child-specific one. It's shiny and bright and it sings you a little ditty each time you put a coin in the slot.And in the immortal words of parents everywhere, it's for his own good.Establish a smart attitude to money at the outset and your children's financial future should be assured. Here are a few lessons it could serve you well to teach them.1. Don't spend more than you earnSounds simple - but how many of us, given the ease of access to credit, charge things when we don't have the cash? Instead of waiting we opt for instant gratification; the pain of repayments and interest comes after.Of course, children won't witness that bit - they'll just see you flash the plastic and bag the goods. So it's really important that you consider the example you set with your own spending habits and explain that what you buy on credit now has to be repaid later.A more tangible lesson can then be taught using (finite) pocket money. The Australian average is $10.68 a week, says a recent study by Bankwest. There's another key concept you can convey here: you have to work for money. Three in four parents set conditions for payment, with household chores most common (good behaviour and school results are next).2. Compounding is magicWe all know - at least on some level - you don't just need to live within your means but below it. I don't know about you but I'd like to stop earning at some point - and continue spending. You need to stretch the money from maybe 45 years of working life across perhaps 70 years of (adult) living.Now the earlier you start saving, the easier this is to do. Such is the power of compounding, which is best illustrated by a snowball that gets larger as it rolls. Here are some numbers to describe it to your child: if they start putting just $20 a month into an account that pays 6.5 per cent at age 12, they'll have almost $3000 when they turn 21. But if they don't start until they're age 15, they'll need to put away $36 to amass that amount and at age 18, $74.In the first example, only $2160 comes from their deposits, with the rest interest; in the last, they'll be out of pocket for all but $270.Bankwest's survey suggests parents are instilling fiscal responsibility in their kids, with 58 per cent saving their pocket money. And so they should because ...3. You can look forward to cool stuffWe probably wouldn't resist the urge to spend, spend, spend without good reason - whether on a new car, overseas holiday or cushy retirement - so why would our kids? They may yet have very little appreciation of forgoing small things in favour of a bigger payoff down the track, so you'll need to demonstrate it.We spoke about the example you give with your own spending (and saving). Why not establish a shared family goal, such as a trip to Disneyland? You explain when you decide not to buy something that the money is going instead towards the trip; offer to put aside for your kids the equivalent amount of any items they too go without, so they can spend it at the theme park.4. Parents deserve to be repaidJust kidding - we all do it for nothing more than love (and I'm not just saying that because my mum and dad are reading).Now if only I could figure out why my little boy refuses to actually deposit any coins into the piggy bank, withdrawing them instead at the last minute.

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