How Financially Capable is Your Child?
The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.
By Kendall Flutey, Banqer
Photosynthesis, Pythagoras’ theorem, Pericles: a few things I learned about at school and have subsequently forgotten. Was studying these subjects a good use of my time, or were there more important things I should have been learning?
As I traverse the minefield that is the personal finance landscape of 2017, I can’t help but think that I should have pleaded with my teachers to throw away the textbooks and teach me about something far more valuable – something that we all need to know, but are never formally taught about: money.
As it stands, the most common way we learn about personal finances is through trial and error. Given the impact money management has on our lives, this is rather flawed logic. More concerning still, research shows that your level of financial literacy, or how much you know about money management, is tied to your future financial prospects.
If the situation is so black and white, why aren’t we giving our kids the best financial head-start possible?
Lack of time and cultural constraints are just two of the restrictions on monetary lessons taking place in the family home. But perhaps the biggest factor is that parents themselves may be misinformed about financial subjects and pass these misconceptions on, either explicitly or through their behaviour.
Even more bizarre, it seems many of us are lying to our kids. In one study, 80 per cent of parents surveyed admitted to intentionally being dishonest with their children when it comes to money matters.
What your children should know
Assuming you’re in the other 20 per cent of the population, you may be interested in a ‘cheat sheet’ of sorts about what your kids should know before leaving school, and (hopefully) the nest. They should already have forged a proactive, positive relationship with money.
At a bare minimum, when kids leave school they should feel comfortable and confident when talking about their personal finances. This will ensure they have the assertiveness and ability to articulate their financial position both in good times and in bad.
What we don’t want is young adults getting into financial trouble because they either don’t realise what’s happening, or don’t know how and where to ask for help or are too uncomfortable to do so.
To achieve this, their financial vocabulary should be developing from as soon as they can talk and are old enough to not swallow a 20-cent piece. By the time they leave the house for good and their bedroom is ready to be turned into the home gym, your child’s arsenal of financial terms should include:
• Credit score
• Overdraft, and
They don’t need know about everything the financial world will throw at them, but should be prepared for what they’re already engaging with as a consumer or is coming up. And, of course, they should know how to access any other information they might need. This simple stance will ensure they’re making sound daily decisions, tracking and forecasting their position and are not financially misled at any stage.
Your kids are going to be looking to you to learn this behaviour, so you might need to brush up on your financial knowledge yourself.
As a parent, the easiest way to do your part is to bring your child into the financial fold. Many young adults don’t have a clue what their family’s financial position is simply because their parents never let them in on the details of the household finances.
Age-appropriate inclusion into your family’s financial affairs is the best way to grow a financially healthy young adult. But to avoid your salary or mortgage payments innocently becoming the talk of the classroom, have an upfront conversation around privacy first.
Make the most of any ‘financial firsts’, like a first bank account or a first EFTPOS card. Every ‘first’ that kids encounter is a potential learning opportunity.
Just as you really should have ‘that talk’ before your child goes on their first date, you should be having money conversations before each financial milestone. It’s your job to remove the ‘magic’ from money. A bank account shouldn’t just magically appear one day. Take them to the branch, let them talk to the teller, and let the whole experience be the catalyst for a greater conversation at home.
Enlist the support of others. Schools are a great place to start. Financial capability is in the New Zealand curriculum, and there is no excuse for schools not to incorporate it. As a parent, it’s your right to ask for your child to be taught this.
So, when your child comes home and requests your help with an essay about the role ambition played in Macbéth, perhaps you could also discuss the role ambition played in the market crash of 2008. This will bring them one step closer to financial capability – and you one step closer to that home gym.