The vital new money lessons to give kids at every age

Real Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.

I had an enlightening and horrifying chat with a very clever 20-year-old woman the other day.

Despite the fact the government was already set to open up to every first homebuyer the ability to buy with just a 5 per cent deposit (on Monday of last week, it just brought the changes forward by three months), the young woman said this:

“I don’t know anyone – there is not one of my friends, and I know about 5000 people – who is saving for a house. We all think we’ll never be able to afford one so why would we bother?” she said.

I had two immediate thoughts:

1. 5000 friends?
2. Oh no!

What’s the problem?

The woman articulated what I’ve witnessed a lot while addressing graduating high school students: total despondency and disengagement about ever owning a home.

Young Aussies feel defeated before they’ve begun.

Firstly, with property prices as high as they are, it’s time we acknowledge that owning a home may not be the silver bullet it used to be. But that’s with the careful caveat that housing insecurity is real and a risk for which non-homeowners ideally need a mitigation plan.

Secondly, and more concerningly, it was clear this young lady with incredible opportunities ahead of her still feared her future held broader financial insecurity.

Let’s address that. Because it is usually solvable – with the right tutoring and targeting.

Realise up front that smart money management is about attitude as well as aptitude, and I’d say attitude is most important. Parents can instil that (and adults, if need be, can alter theirs).

What you can do about it

Here’s what I consider to be the vital new money messages to get across at every age and stage.

Age two to four: I am often asked if you can teach kids about money when they are super-little. Maybe not explicitly, but you can sure establish that right attitude.

Here, food is a great proxy for money. You only have to spend a few minutes with a very small human to understand that we arrive hard-wired for a certain level of consumption and with a particular amount of patience.

The goal is to try to teach how to delay gratification… and that a little waiting works wonders.

Age five to nine: Money is getting real – they’ll even study currency and cash early in school… for what that’s worth because they’ll barely see it in real life.

So with money almost totally invisible, the main game is to get across that tap-and-go cards/phones/watches/implanted credit-card chips (that last one is already real!) aren’t some kind of financial fairytale.

If you don’t tell children every time you flash the plastic/device, how are they to know that (if credit) there is an “evil” bill at the end of the month?

Age 10 to 14: It’s time to put money properly on “the menu”… by which I mean talk about it more.

It’s long gone that families would sit around the table and dole out the cash pay from an envelope, but channel that process and introduce your kids to my magic money split:

“Fritter”, “fun” and “future” in proportions 50 per cent, 40 per cent and 10 per cent.

(It would be really “magic” if you could still do this as an adult – alas there are bills to pay. But you should at least aim at all stages to put away 10 per cent for “future you”.)

It’s important to make this fun. Help your kids set goals so sweet they can almost taste them: Squishmallows and/or Lego (fritter), holidays (fun), their first car (future) – whatever excites them.

At ages 10 to 14, you will be deeply into pocket money territory and the saving and striving habits your kids form now can stick for life.

15 plus: Start to talk specifics about financial products − and warn them about debt, whether in buy-now-pay-later or traditional credit form. Alert them also to the fact that − as earners and about-to-be adults − they will become a target of financial marketing.

They need to know their pay rights (check the Fair Work Ombudsman), their super rights (12 per cent once they hit 30 hours a week or age 18) and their work worth (advocate for yourself always!).

What about when your kids are adults?

With finances becoming increasingly intergenerational (hello, the living inheritance) you have a vested interest in keeping the − gentle − lessons going.

Let’s get back to that 20-year-old, financially despairing woman.

We had very little time together, and I felt very desperate to set her future right − so, I told her three things:

1. If she starts saving just $6 a day, and earns an 8 per cent investment return on it, she will be a millionaire by 65. And she will multiply her money by 10 – only $100,000 will come from her own pocket, with the rest via investment returns. So…
2. Get a micro-investing app (there are a few, but I recommended and watched her download Raiz). And…
3. Automate a daily or weekly transfer of whatever − stretched − amount she can afford.

Because for all the financial challenges in the modern world, tech can now facilitate the fix.

But the key is to realise that when you are young and might feel powerless is, in fact, the time you can harness the full power of compounding and take full, empowered advantage of it.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.