Teaching kids about money in a digital world

Coined the “invisible money generation”, two-thirds of Australian parents (66%) believe the digital world is making it harder for children (4-18) to grasp the value of real money. Because of this, three in five Australian parents (62%) also believe their children’s generations will be financially worse than their own generation, with an even higher proportion reluctant to speak to their kids about money because they are stressed about their own financial situation.²

This, however, comes with its own set of issues, as a staggering one in six Australians (around 1.9 million people), struggle to repay their debt, with outstanding balances now totalling $45 billion³. For Founder of Everyday Neuro, Dr Janine Cooper, stats like these are even more reason to start the “cashless technology” conversation with your kids, combined with lessons on how to save, budget and invest in a digital world. 

“Piggy banks are now being replaced with digital savings accounts,” Janine says. “That’s why continuing to use money is so important, as it will give young children the ability to have something concrete, that they can hold and own.

“This enables them to create an accurate mental concept of what money is, and allows them to understand quantity and cost. Also, show children online bank balances and how the total amount is reduced just after you’ve bought something.” 

When it comes to teaching your kids the value of money, Janine also believes, the younger, the better. “Children as young as three will start to develop the ability to count and be able to quantify, and this coincides with a massive boost in self-awareness, as they develop wants e.g. I want that toy,’” she says. “In response to this, parents will be likely to start to teach children, that they can’t have everything they desire and often the topic of cost comes into such lessons, as well as in child’s play e.g. playing shop with a cash register and plastic fruit and veg. 

​“Once these abilities have started to develop around the age of three or four, children can be taught about the concept of money and learn skills regarding money matters.” 

Mum of two, Charlotte, has put this concept into play, introducing money lessons to her son Will (5) and Sam (2) from a very young age. “Will has a chores chart where he gets 20 cents every time he gets a tick e.g. for brushing his teeth, bringing his plate into the kitchen, getting dressed when asked for the first time,” she says. “He can then save for something he wants. At the moment, it’s his own lava lamp.” 

Janine believes that by teaching your kids the concept of saving, spending and investing “real money”, as Charlotte has done, you reiterate the value of it in a digital world. 

“Keep in mind that around the age of three to five, children can be taught to save,” she says. “This requires them to learn about delayed gratification. In a series of experiments including the infamous ‘marshmallow test’, Walter Mischel and colleagues at Stanford University, showed that teaching young children to have willpower or delayed gratification led to more positive long-term outcomes, and also, the ability to be more in control of finances⁴. 

“Children can be taught that they can contribute to their savings and the amount they can spend, by doing tasks with a predetermined value.

“Around the ages of six to ten, children want to spend their money. Hence, it’s a hugely important time to teach them that ‘money does not grow on trees’, and they need to make choices about how to spend it. Taking children to the weekly shop and teaching them about looking for the most cost efficient option (e.g. $ per kg) is a great skill to teach a child. 

“The topic of investment, on the other hand, requires great cognitive skills relating to mathematics and non-concrete entities and thus the concept is best taught to older children. From the age of 11, children can be told about interest, and with guidance, can be taught to establish long-term goals for more expensive items and investments. The idea here is to have them think about their actions and sacrifices they need to make if they want something. For example, instead of buying a snack each day after school, they can put that money aside for a new gaming system.” 

While Charlotte’s kids are still young, she still likes to discuss family finances in front of them.  “We always talk about the value of things, so that the boys understand,” she says. “Will is quite interested in what we can afford, partly because we’re looking at buying a family home, so we have quite open discussions around him.”

​“We also talk about why we work to earn money. Once, we drove through Mosman and Will told me he wouldn’t mind if I worked an extra day so we could afford to live there!”

So, when should a parent pare back the money conversations, so that their kids can start making their own financial decisions? “By the time a child has grown into an older adolescent or young adult, parents should reduce their input and allow their child to have independence, even if it means learning from their mistakes. Hence, teaching a child about saving, spending and investment should occur from an early age, so they have this knowledge to guide them.”

Three more tips to teach kids about money: 

Talk about debt – “Even if a parent has got debt, they should be transparent with their children and explain that it’s not desirable and suggest ways in how things should be done,” Janine says. “Parents who know they have poor financial skills can create positive money habits in their children, so long as they are aware that they have the ability to make it happen.”

Create a healthy money relationship – “Ideally, an agreement should be forged between parents and older children, so that advice should be provided only if it’s been sought,” Janine adds. “Similarly, like younger children, older kids should continue to have parental guidance, and online bank accounts make it possible for adults to have parental options to view and block transactions. Children should be made aware that they are responsible for their own money choices and the consequences of what poor decisions may be. Having an open line of communication can be best for all concerned, as an over protective parent can stunt their child’s development of skills relating to how to successfully spend, save and invest.”

Life lessons over money lessons – “A great piece of advice is that although money can buy you things, it cannot make you a good person,” Janine says. “Children should be taught to be careful with their money, as the future is never certain, but also about philanthropy and how to support others when they can. Teaching children about donations, charities etc. is an ideal way to teach this altruistic behaviour.”

Speak to your financial adviser or learn more with BT 

Next: Kids, Money, Apps 

[1]https://www.rba.gov.au/publications/bulletin/2017/mar/7.html
[2]https://resources.moneyandlife.com.au/hubfs/FPA%20Share%20the%20Dream%20Report%20-%20August%202018.pdf
[3] https://www.smh.com.au/money/borrowing/we-owe-45-billion-on-our-credit-cards-and-it-s-not-getting-better-20180703-p4zp6j.html
[4] https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment