How to set your tweens and teens up for financial success

Don’t want to become the Bank of Mum and Dad? How to set your tweens and teens up for financial success.

CommBank, Westpac, NAB, ANZ, BoMD – these are the five biggest mortgage lenders in Australia. It’s a pretty familiar list, but you’d be forgiven for not recognising the final name. 

BoMD, or the Bank of Mum and Dad, describes regular Aussie parents who are helping their kids get onto the property ladder. 

In 2020, the Bank of Mum and Dad loaned out a combined $92 billion, at an average of $73,522 each, making them Australia’s fifth largest lender, as property prices continue to skyrocket.  

And it’s not just home loans that parents are helping their adult children out with.

Most generous bank in the world

Aside from funding mortgages, it turns out the Bank of Mum and Dad is pretty generous in other areas, too. 

Research found that almost half of Australian parents with kids over 18 are helping them out financially in the following ways:

  • 23% pay for their groceries
  • 17% let them live at home rent-free
  • 14% cover their bills
  • 9% pay for car costs, like registration and petrol

While some parents may be happy to give their offspring a leg up in life, not everyone can – or wants to be – funding the lifestyles of their kidults, especially if it comes at a cost to your own finances.

If you’d rather not join the ranks of the Bank of Mum and Dad, setting your kids up with good financial habits and teaching them now, when they are tweens and teens, could go a long way to help. 

Three money things to teach your kids now

Whether they’re still dealing in pocket money or have their first teenage job, it’s never too early for kids to learn some simple money truths. Start with these three lessons and they’ll be well on their way to financial independence.

1. The value of money

In a world of tap and go, lots of us have lost touch with how much things cost. And for kids who’ve been raised in a digital world it’s a lesson they’ve never learnt in the first place. 

You can teach them the value of money and what things cost by playing a simple guessing game: dig up a recent electricity bill, broadband bill and car registration, and ask them to guess how much they think those things cost (try not to laugh at how off the mark they are!)

And on an ongoing basis, expose them to the financial workings of your household rather than shielding them from it from. When a bill comes in, or when you do the grocery shopping, let them know how much it cost, and what you got for the money.

2. How to save

Learning how to save – whether it’s for something you really want, an emergency or just to cover the costs of everyday life – is an invaluable lesson. There are a few different rules that can be applied to spending versus savings, but given they have few expenses, the 70/30 rule is a good one for tweens and teens.

Whether it’s income from pocket money or a casual job, tell your kids they can spend 70% of their income, but that they need to save 30%, even if they’re not saving for anything in particular. 

To avoid temptation, you can offer to look after their savings for them. If they save 30%, on pocket money of just $10 a week you’d be able to return $156 in savings to them after a year. To incentivise them to stick to the habit, you can offer to pay interest on their savings, like a bank would – $5 when they hit $50, $10 for $100 and $15 for reaching $150. They’ll learn an important life lesson when that $156 has turned into $186 with interest added along the way. 

3. How repayments work

If you think you might help them out with money in the future it’s important that they learn there’s no such thing as a free ride. Start by teaching them about loans, repayments and interest, now. 

For example, if they want to buy some cool $100 trainers but don’t have enough money, you could loan them the money, but explain that they’ll have to pay you back $110, in 10 equal payments of $11, due on the same day each month. Whether they save their pocket money or do extra jobs to earn it, it’s up to them to come up with the money by the repayment date. And don’t forget to charge them late fees (perhaps $1 a day) for overdue repayments.

With many parents admitting they’ve sacrificed their own savings, gone without, sold assets, put their own house on the line or delayed their retirement in order to help their adult kids financially, teaching your tweens and teens about money may be the smartest thing you ever do for your own financial wellbeing.

 

A business journalist with over 20 years experience, Michelle Bowes has written countless articles explaining complex financial topics in easy-to-understand and engaging ways, and even more about gender inequality when it comes to money. Michelle believes the solution to overcoming the money challenges women face is for them to start learning about money – and putting good money habits in place – as soon as they start earning it, in their very first teenage job. Her personal finance book for teenage girls will be published by Affirm Press in 2022. You can follow the journey @money.queens.au on Instagram.

If you enjoyed reading this article, you might also like Teaching kids financial responsibility.

Michelle Bowes

A business journalist with over 20 years experience, Michelle has written countless articles explaining complex financial topics in easy-to-understand and engaging ways. She lives in Sydney with her husband and three kids — including two teenage daughters.

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