Episode 38: Educating your kids about money

September 27, 2021

Even now many high school leavers are still saying they're not being educated about money. People in early 20’s want to buy a home sooner than later but school didn't teach them the things they needed to know to make quality financial decisions, and they find it very overwhelming and confusing! Financial literacy statistics are shocking in Australia with 1 in 3 adults, and 1 in 2 women unable to demonstrate an ability to understand basic financial concepts like explaining what an interest rate is, and how it works. We often talk about whether your financial literacy is a result of what you were taught as a kid and the impact of this and so today’s episode is on how to educate your kids about money. Financial literacy responsibility starts with parents and then becomes your own never ending journey.

Podcast Transcript Available Here

Duration: 22:12

Trudi Cowan: Hello and welcome back to Financial FoFu, I'm Trudi Cowan. Sarah Eifermann: I'm Sarah Eifermann Trudi Cowan: And today we're going to have a talk about something that we've mentioned a few times, which is money and your kids. Yes, and we often say in our podcast that Sarah and I have a great benefit in that we've always worked in a financial area, and probably had parents that have worked, had businesses and talked about money. So we've had that natural upbringing of knowledge. Sarah Eifermann: Yeah, mine was more from work experience and from family life, Trudi Cowan: But not everybody gets that benefit Yeah, and we both believe that starting early with the kids and talking to them about money and their finances is a great way to have them start their life with a bit of knowledge Sarah Eifermann: And make better decisions Trudi Cowan: So today we wanted to have a bit of a chat about money and kids and neither is professing to be experts. In this my kids are still very young, Sarah doesn't have kids. But that doesn't mean that we cant provide you with some tips and things to be doing with your kids to help their money education. Sarah Eifermann: Absolutely. Trudi Cowan: And I think that the big key one for me is talking to your kids about money. Sarah Eifermann: Anything that requires awareness and presence, requires it to be brought to attention. Yeah, so talking is actually the easiest, most simple way to bring money and education around money and the value to you know to currency to your kid’s attention whether they're very little, or in their mid-teens. Trudi Cowan: And that might be as simple as I've only got $10, so I can't buy that I icicle because I need to buy the milk and the bread, and whatever else it is and by the time I add those things up, it's more than $10 so I don't have anything left to buy the icicle. It can be as basic as that when you're at the shop. Sarah Eifermann: I think the complicated thing that we've come to as a society is because we have electronic funds now as opposed to tangible money and the money box. Kids don't see the cost of physically handing over money that there's only X Y, Zed in the wallet or the purse. It's an unlimited uncapped value that they can just tap into at any time, Trudi Cowan: and my kids definitely have said well can't you just use the card. Sarah Eifermann: Really Yes Yeah, why can't you just use the card so in, you know, thought processes that they think the card is unlimited. So I think we're going to talk about money, we're going to break it back down. Let's go through the real value of how you earn money. Yeah, how do you pay tax? So you don't get all of the money that you earn because taxes were talked about to contribute to society and that you only get the net value, and then how you break that money down based on a budget and where things have to go as well. Trudi Cowan: Sarah sometimes has a laugh with me because I applied the money tax, which may not even be in the context of money but here is some chocolate, but you've got to give it back to me because you've got to pay taxes, yeah. Sarah Eifermann: I never forget years ago would have been like 15 or something and you know, Parent Swap was on TV, an American show, and there were like these delinquent kids that got sent to stay with an Amish family. And I mean that was a culture shock, anyway, but they obviously got pocket money, and that he sat there, and he said, right, so here's your pocket money of your $100 you give me back 10% in tax 10% For Rent 10% for food 10% for clothing. The kids face with just like, what, how can you be so harsh and he goes, This is called real life, because that's actually, what happens is that money, unfortunately, does not grow on trees, and having that conversation and awareness and realization of its true sense of currency as to what you're able to do with it is super important. Trudi Cowan: I had a friend in high school whose parents both work so she had to get herself to high school, so they would give her, let's say $50 For the week, and they basically said to her, it's up to you you can pay to catch the bus to and from school, or you can ride your bike, right. So, it was up to her therefore how she spent the money, if she caught the bus there wasn't much of $50 left for her to spend on other things, but if she rode her bike to school, she then had more money available to go to movies or buy a lunch order at school or wherever it was but it was enough to teach her. You've got options. Yeah and what you choose to do with that money is really important and it's up to you but if you choose to catch the bus every day, you're not getting any money, when all your mates are going to the movies on the weekend. Sarah Eifermann: Yeah, yeah so cruel. I mean they sound like little things, but it's the little things that steamroll into bigger things that teach the behavior of the decision making, and with the financial literacy stats in Australia being so poor like one in three 8.5 million Australians, adults, are financially illiterate. It's the behavior choices and the education they get at a young age that impacts their ability to make life-changing decisions on wealth accumulation, retirement savings, even investment options, and the things that go with it. There are tangible things that you can do. There is a money week the MF double-A supports the money week Australia you can go to the website, we'll put the links in the episode description for you. That's very basic stuff about the same things that we've been talking about, talk to kids about money, how to break down a budget with pocket money. Yeah, and have them contribute to the different things they had to pay. My parents definitely tried with five kids, it wasn't easy. We had a red money box, and the money seemed to go in and never come out. And, you know, like it's, I think the biggest thing is about diligence in creating strong savings habits, and that's what you're talking about with the bus example is giving kids a choice as to where they spend their money. Trudi Cowan: And learning that it is a choice. You can go and spend all your money on the chocolates if you like, yes, but then that means that the other side of that coin is that you're walking to school or whatever the flip side means you're missing out on going to the movies with your mates, so I think it is important to teach your kids that choice. Yeah. And I think pocket money is a great way to help that conversation. And it might be around well here's your pocket money whatever the amount your family decides is appropriate because that'll vary depending on your own incomes and beliefs. Sarah Eifermann: Take money out for tax. Trudi Cowan: Take some money out for tax, and then it's up to the kid, they can go and spend it all. And then they've got no more money until they get some pocket money, or they can save some of that money. And I personally believe that if there's a big thing that they want to spend their money on. Let's use an Xbox for an example, yeah, that shows them how much that Xbox is, yeah. And then how many weeks of pocket money it takes for you to get Sarah Eifermann: Correct breaking it down the savings, Trudi Cowan: And then it's up to the kid to decide how they're going to save for that are they going to save 50% of their pocket money towards that Xbox, or are they going to save it all so that they can get there quicker or are they going to spend all of their money and they missed out. Yeah, completely and that just is helping your child to learn the value of that dollar and the importance of their choices around that money. Sarah Eifermann: I would recommend splitting the savings go half between a bank account and half between physical cash and I know that can be a bit annoying for us having to go to an ATM. Good luck going into a bank. But the benefit of tangible money teaches them the difference between cash as physical cash and electronic cash and how it feels differently, how it's easy to spend differently. And then that gives them life skills and that's really what we're talking about here is building their life skills in the financial category, so that they can make better decisions as they get older. Trudi Cowan: One of the fun experiments I've done with my daughter is, give her a $5 note, going into K-Mart. Yeah, and said you can spend it whenever you like, but you've only got $5 Yeah. And we ultimately walked out with nothing because she decided it was more important for her to have that note than any other things in the shop but she picked up and put down so many things that she really wanted and then she just couldn't decide on anything is important enough for that particular money now that's one experiment there's been many others where she's just spent the money on chocolate, that's it's gone, but it is actually really interesting even from a parent perspective to watch the little brains, deciding what's important. Sarah Eifermann: At least if you can do it once a week one money skills exercise would be great, but at least once a month, and encourage their development and help them make decisions, even if that's the weekly shop. Yep, and you give them the basic food I'm so we're back talking about basic discretionary and luxury living expenses. Right. They'll be basic living expenses that you require to feed the household and clean the toilet each week, give them the money that gets spent on that, give them some money for discretionary living expenses, and then give them one luxury choice to the value of 10 or $15 that they can purchase with that so they can see the want versus needs an argument of well basic living expenses is a need, they're not want, you need clothes on your back, you need a roof over your head you need food in your belly, versus, you don't need potentially an Xbox. Well, that's really a luxury choice, discretionary ones in between and more things like brand name clothes, as opposed to Kmart clothes, or a nice new car as opposed to a very perfectly reliable older vehicle that's 10 years old. So it's about making the right decisions earlier and showing them the behavioral habits that will help them make those decisions, and be disciplined in those decisions which are really valuable. Trudi Cowan: I think it's also important to acknowledge that kids watch their parents and absorb their habits as well so if they're saying you're going to the shops just tapping and buying whatever you want whenever you want, then that's going to be a habit that they're going to learn. Yeah, whereas if they see you at the supermarket picking up two items and checking the prices on them, or looking at the unit price so what's the volume, prices, they're going to learn from that as well, that's, you know these two items look pretty much the same, maybe we can go for the cheaper one. In this particular instance. Sarah Eifermann: I suppose that's what's important in that conversation is the difference between bulk and individual storage versus bulk purchase versus savings. I grew up with no-frills, no-frills Franklin's doesn't exist anymore but outies here instead. So, I was only thinking about that the other day, the difference between the two. Trudi Cowan: And look, that doesn't mean you can't go and do all the spending but maybe just be aware of whether you're doing it on your own or whether the kids are sitting right next to you. And watching that being spent. Sarah Eifermann: Exactly. Yeah, absolutely, absolutely. Trudi Cowan: If you've got some older kids, and it's probably helpful to get them to do some research on what they want to buy. Yeah, let's go back to the Xbox example, you can go to the most expensive shop, and just buy it because it's there and it's easy, or you can go, I want it but I don't want to spend that much money so let's do some research, I can get a secondhand one on eBay, or I can get it from a discounted shop that's brand new, but it's a bit cheaper when you just want to drive a bit further together. Sarah Eifermann: Or I can buy it on Gumtree but then does that come with a risk, even though it’s cheaper you know, am I better off. Trudi Cowan: So for those older kids, you know, doing that research can help them learn that, yes, you can get the instant gratification of walking straight into the shop and buying that product, but you can also save some money if you did a bit more research and a bit more workaround, where am I going to buy it and then my maybe happy to get a second-hand model and wait and wait for a couple of weeks, potentially, a bit longer to get the product and I think that can be really useful for the older kids to learn, they're so savvy on the computer these days it shouldn’t take them much to be doing a bit of research and digging to find the optimum place to purchase one. Sarah Eifermann: Trudi, do you own an Xbox? Trudi Cowan: No Sarah Eifermann: Well you used the scenario a few times this morning. So I'm just checking whether Trudi owns an Xbox. Trudi Cowan: I'm just running with the same widget. Exactly, I get caught up with using widgets. Sarah Eifermann: I suppose it's important to note that I do have a financial literacy course that's available online. And whilst it's really not suitable for young children mid-teens, the early 20s Definitely, but some of you can actually take the worksheets from it's really good for you to do as an adult to learn the language to talk to your children with, And the modules that are in there the worksheets that are there, like the money goals worksheet would be perfect for a child. Yeah, right, because it literally does that, what's the goal. How much will it cost, how long do I need to save what I need to give up to achieve this? Yeah, right. So it's teaching behavioral habits so you can jump online and have a look at that and login and learn the languages and the things that we talk about and a method, yep, because I can appreciate for some people it's so easy for us to just sit here and go oh let's just do it like this, but that may not be their own knowledge position, they may not be how their brain or their mind works. So, sometimes modeling, another program is a great way to then be able to converse and talk this language to your kids as well, and also demonstrates to children that sometimes you actually have to educate yourself first before you can assist in a conversation. Trudi Cowan: Yeah, that's exactly right. A couple more examples of things we used to do, or my parents used to do when we were kids, we didn't get to go to the show very often, but when we did there was a limit on the show bags. Sarah Eifermann: One at my household. Trudi Cowan: Now, no so we had a $1 limit, and I cannot. I can't remember if it’s five or $10. I can't remember the amount. Sarah Eifermann: I got one $5 show bag, Trudi Cowan: But we were given the amount of money, so let's just run with $5, and we can buy as many show bags as we wanted for that $5 But we only had $5 So, it's the came out, we used to pour over the show bag catalog that comes out of the house. To work out which show bags we're going to give us the most lollies. Yeah, for that amount of money. Yeah, and it was actually really good learning and great research because it forced us to sit there and we would go through money details. Sarah Eifermann: Sounds very familiar. I got through show bags very beta when the because that had the most amount of lollies in it for $5. Trudi Cowan: And look, you might not think that that's financial education but it is because you're giving your kids a choice of what they want to spend their money on, I could have gone and got the one show bag that had the hat the drink bottle and the whatever with the branding on it, but I didn't want that I wanted the most amount of lollies I could possibly get. So, we literally would spend the time during the research to work out what was the sticks and pops, and the very better way usually and maybe a cheap bag but we would. Yeah, because his mom and dad would have said as well at the beginning we're not buying your drink, and we're not buying anything, any food. So within those show bags, if you want to drink, you need to buy it, it's got to be within that so you know there were conditions around it. Sarah Eifermann: Well five children, I only went to the show once as a child. Trudi Cowan: The other one was the primary school kids, I don't know if you remember the Scholastic Book catalogs. Sarah Eifermann: Oh, as in the school, as in all the different books you could pick? Trudi Cowan: And you could buy them and order them, again, my parents are, you know, I'm a big reader, so I'd buy the whole catalog if my parents would let me. But again, it was a similar thing. Yeah, you've got a budget, I'm only spending $10 on books. Yeah, and I've done this with my daughter as well because she wants every book in the catalog and she'll sit there and circle them all for me and I go, but I'm not spending that much money. So you need to pick, is it more important that you have this expensive book, or do you want three that are the same price as that expensive book? Yes. And again, it's that life skills and that winding up of your options of where is the better place to be putting my money. Sarah Eifermann: It was the night before Christmas in grade one, I did love that same thing. And look, I grew up in a household of five children. So, you know, $5 was not just $5 . For me it was $25 across 5 children, $25 in the 80s was a lot of money, and I suppose it's about the relativity of money as well, right. $100 Now may not seem like a lot of money, but it will only be a matter of time until it is equivalent to $500, what it is now. So, I mean, when it comes to these things that you do, it's about making a conscious effort in everyday life, you may actually find there's an example every single day that you could use to explain where you're at and what you're doing and how you can use that to change behavioral thinking or thought process which lead to better decisions. Trudi Cowan: Another one I like. When the kids want something that's a bit more expensive or a holiday or something, is to explain that in order to get that let's go $5,000 holiday, I have to work for this many days, And all I'm doing is working out many days is paying for the holiday. Not everything else I still got to pay for food and the mortgage and everything else on top of that, but it takes me this many days in order for me to earn enough money for us to go on holiday, so it can help to put into context that I'm not just working, because I enjoy it. There's a financial reward out of that but I still have to choose how I spend that money and that can help you kids sometimes put into context of Mommy's got to work for two weeks for us to be able to go away. Yeah. On this holiday, that takes mommy away from us at work for two weeks. Yeah. In order for us to get this other benefit, maybe move on to a cheaper one So Mommy can have a bit more. Yeah, especially for the little kids. Yeah, but even for the older kids maybe not the word language or money but putting it in that context of, you know, my earnings only covers so many things. You know, the money doesn't come and doesn't grow on a tree as my dad would say. Sarah Eifermann: I mean I think the thing is, as well as is talking about what you do and that was always hidden from us as children we were never allowed to know. My parents, so I never had any real understanding of that, the amount of work that went into earning certain things to be able to afford to do other things as well. So really, again we're back at talking about it is, whichever way you break it down is talking about it in as many ways as you can. So, we're out of time for today, but I would like to hear from you. We would like to hear from you, your tips and we will post the best three tips that come in on our Instagram. Within a week of our episode airing. Trudi Cowan: I really want to hear what everyone else has parents did with the show or the catalogs or what we say things, Sarah Eifermann: You know. Yeah, I wish I could find a picture of that money box. I swear to God that thing and I had all of our names written on it, and it was a slide-out and I would always wish for my older brother's like slot because he didn't spend his money as much as me. But that didn't happen. Trudi Cowan: But I think the key takeaways are to talk about money with your kids to your kid. And just be aware of your own spending habits and how your kids view them. Sarah Eifermann: And it's amazing once you put attention on it. How much your awareness changes about what you actually do with the cash. Especially if you've got kids watching you. Trudi Cowan: Oh, and they're always watching. Yes, well the little ones always watching the older ones are probably locked in their rooms. Sarah Eifermann: Ignoring you. Alrighty. Trudi Cowan: Thank you for joining us. We will be back again soon. You've been listening to Financial FoFu and I'm Trudi Cowan. Sarah Eifermann: I'm Sarah Eifermann. Have a great week. Trudi Cowan: Bye.

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