This is such a hot topic and there is no right or wrong. At the end of the day, it is what you feel is right for you and your kids. I have learnt along the way our children are so much a part of us but more importantly, they are their own 'being' and we can only guide and nurture them into the wonderful human beings they will become. It's so hard to not 'just do' for them OR give them 'what I didn't have when I was a kid'.
I believe there is a fine line between giving so that they have an advantage going into adulthood AND giving them too much so that they have no sense of the value of money, no sense of delayed gratification and poor financial literacy.
In today's post I would like to explore and delve into different areas that I have tried to develop with my kids (sometimes they listen and ALOT of times they 'don't' seem to be listening 😊 … teenagers. I persevere and hope even 10% sticks). Even if you don't have kids, I encourage you to think of someone you know that could benefit from this post and share with them. Give the gift of knowledge.
"The more one knows, the luckier he is, for knowledge is the greatest gift in life"
Barefoot Investor for Families, by Scott Pape
I really enjoy reading Scott Pape's books. His first book, The Barefoot Investor, had some total game changers for me, ie, Splurge Account (guilt-free money that you assign each month to spend on whatever), his bucket system and each stage of your financial journey laid out in really easy to understand terms and action. I like to take a bit from lots of different books as there is really not a 'one size fits all'.
Coming back to this specific topic, Kids and Finances, I found Scott's approach spot on. He has a 10 point plan called 'The Barefoot Ten' in his awesome book The Barefoot investor for FAMILIES. I have listed below this snippet from the book as this is magic. Logical AND has lessons for an all-round approach. He has so much other step-by-step information and is so good for anyone who has kids, knows someone with kids, or knows teenagers or young adults. Cost around $20-22. Bargain!
The Barefoot TEN as listed in the book. Many of these relate to teenagers and 'young adults' and when you delve into them are quite powerful. I have tried to use some of these with my teenagers and added/tweaked as I felt comfortable with. What I like about Scott Papes books is I take them as suggestions and work them into my understanding and it helps me increase my desire to learn more.
Here are some of the things I have done that have worked or are hopefully planted as 'little seeds' in my kids' minds 😊
1. Open a free high-interest saving account
At 15 years of age, you can open an ING Debit card and multiple online saving accounts. We have expanded on this to have 50% of any incoming cash (gifts, part-time work) to go straight to 'savings' and the balance stays in the Debit card for 'splurge' / guilt-free spending (another of Scott Pape genius suggestions – refer to his The Barefoot Investor book).
A tweak we did with this once they started working and earning some good part-time cash was split by percentages. I asked what are the key things they wanted. Things like clothes, socialising, a car, gifts for friends AND I added 'future you' into the mix 😊. I suggested that each time they get paid they work out the percentage to move to each online account.
For example, if they earn $100 for the week. With this example, they would have the ING Debit card as the 'socialising' account and all others as online savings accounts as they wouldn't be buying these items all the time. I suggested when they wanted some clothes, they could check their 'Clothes' account and if they had money, they could transfer to the debit card and buy what they wanted. The big-ticket items would take a while but that would slowly get there and then they could decide if they REALLLyyyy wanted 'that big thing'. With the 'Big Goal' we have suggested that they save as much as they can and we would match their savings for things like a car, tertiary education or even a property (ummmm.... still thinking about that one! 😊). With the 'Future You' account, this is where I have been trying to plant the seed that it's for longgggg term... like when they are old... like 30!!! Lol. Once this account reached $500, I would transfer to a brokerage account and buy ETFs/LICs for them. So far they are agreeing.
Now if the kids are younger than 13/14, I would encourage you to take half their gift money and once it reaches $500, purchase ETF/LICs on behalf of the child. The setup will take a little bit of time but nothing too major. If you have problems, call the bank and they will walk it through with you.
2. Bought and sold something second hand
Would like them to do this and have suggested some of their clothes. Still in progress.
3. Learn to cook at least two low-cost nutritious meals
>8 year old's – the Goal – make a family meal that is nutritional. They plan the recipe, shop the ingredients (keeping an eye out for specials). Set a budget and whatever money they save is theirs to keep, PLUS they learn to cook some easy meals (… less UberEATS when there are older).
Now this was fun. We made a game of it where we gave them $40 to go to Woolies and plan a meal for the family, purchase the ingredients, cook and serve. It worked really well and they looked for specials for the meat and veggies and pockets $13.
Another way was ordering HelloFresh and they cooked some of these meals. Gave me a day off which was awesome! Easy instructions, all ingredients and usually really nutritious.
4. Volunteered in their local community
One child loves horses so volunteers at a horse centre for a full day and gets a trial ride for free. The responsibility of cleaning up after the horses, and taking instruction is invaluable. I would like them to volunteer at a nursing home but that will be later – post covid.
5. Saved you at least $100 on your household bills
This sounds like a great idea. Haven't done yet but will do. Basically, you give the challenge to your child to find a better deal on one of your expenses. Phone plan, internet plan, electricity or insurance. If they find a like for like and cheaper plan then you give them a percentage of the saving. It teaches them how to research, look at the fine print and see how different costs can be AND they reap the benefit of the savings. WIN/ WIN.
6. Promised to never, ever get a credit card
This one is as per your preference. I don’t think this has to be 100% never ever. It depends on how they manage their money. I don't have a credit card at the moment and that suits us well running off Debit cards. I strongly recommend that they stick to Debit cards whilst they are still finding their way in the personal finance world. Once they are confident in their own 'finance skin' then they could utilize the points schemes that can be worthwhile from credit cards.
7. Got a part-time job from age 15
This was a MUST. As soon as they turn 14 and 9 months, in Australia, they can get a job. My thoughts were that if they didn't have a huge commitment with some sort of sports activity then a job was mandatory. As soon as they started working, then Step 1 above kicked in straight away.
8. Earned at least one glowing reference from a boss
I like to always say, give 110% to your employer and it will come back to you. Explaining to them that there are 'employee of the week/month' and how important it was to always do your best and be motivated whilst working. It’s a privilege to work and have employment and they should always be ready to assist. That has been my motto for all my working life and it has served me really well. I hope they do too.
9. Opened up an ultra-low-cost high growth superfund
Taken note and will assist them when the time comes. At present working on helping them understand shares.
10. Setup a savings account for a home deposit
I believe property should form part of your investments however don’t believe it MUST be for a family home first. I have been 'planting the seed' of a property for a few years now and will help in any way I can. One thought is to help with matching some of the deposit as long as they have saved the money first.
Investing Intelligence - Buying Shares/ ETFs / LICs
Once savings bucket fills over $500, then move into shares/EFTs under parents name in trust of the child. You need to declare in your tax returns until the child is 18 and then it is transferred to their name and they can do what they want with them and becomes a part of their tax return.
I like the idea of the child being a part of the discussion on what to invest in and individual stocks are fun however they may not be the best for overall return. The ETFs that are available, like the Vanguard ones are great too however they are expensive per share so the child may not see the benefit of dividend reinvesting. @familyfinance_ had a great idea that you purchase LICs that are cheaper per share and that way the child can see it growing faster (qty of shares). Maybe a combination of all three would be a way to see all growing. I would start this with gift money babies get for christenings, birthdays and Christmas to start with, and then as they start earning their own money, they can start the 10% saving for 'Future You' fund.
The only thing with this situation is that when they are 18, they immediately have access. This could be an issue if they are still 'young' in some ways and my sell up and waste it ... That’s why it is key to help them with financial boundaries that they create themselves earlier on as they will have temptation and it will be up to them.
This screenshot is our CommSec account where I have both kids separate.
The eldest had more invested as they had already started working and so had $3000 to initially invest. I chose VAS, VGS, WOW & NAB, and for my younger child, we bought WOW only.
I didn't know what I was doing really, only that I had to do something. It was in April and it has been interesting to see it go up and down. I even scared them when they 'lost' money and showed them when it recovered. Trying to show them to not worry about the day to day and let it be a VERY long term.
Next batch that will be purchased will be a LIC after I have done some more research and definitely Vanguard ETFs. I am excited for them, they may not have much enthusiasm now but one day ...... 😊
We have used the AMP GROWTH Bond, which we started for each child in 2014.
We deposit $100 pm for each child and 50% of Birthday/Christmas money. We have been depositing approx $1600 pa / child
There are rules listed below
You DO NOT have to declare in your tax returns each year as it is already taxed within the fund. Once the 10 years are up, the value of the fund is all yours ... (no capital gains either)
We have the BOND accounts under our names so once the 10 years are up, we can decide what to do with them next. Either roll over and continue the fund, take out and invest in something else (still in our names) or start the process of transferring into their names. Depends on their maturity more than anything.
Story time: we were advised by our Financial planner at the time to keep in our name as he had too many clients in the past who had created the BOND in the child's name and once the 10 years were up the child/adult had the money at their disposal and sometimes did not use it wisely. Whether it was parents or grandparents. Big mistake and cannot be reversed ...
you must not exceed the previous year deposits by 25%. So if you invested 1000 in year 1, year 2 can only max $1250. If you go over, then the 10 year period starts again ...
Must hold for 10 years. Once over 10 years, you can take the investment out, tax-free, and no need to declare in tax return, OR keep it rolling.
We have ours under our name and will gift to our children when we think they are ready → still thinking how we do this…. Work in progress. Current thought is to help them realise delayed gratification and saving for themselves first. Eg, if they want a car at $12,000 then they need to show they have saved $6,000 and we will 'gift' them the other half (maybe from this bond).
Would love to hear your thoughts and experiences with this. THE MOST important thing here is not to MAKE their life EASY by just giving them money, but to help nurture their own ability for financial confidence and savviness. THAT'S MY WISH for THEM!
This is also a great idea for grandparents as they do not have to declare at tax time and affect their own retirement funds/pensions etc.
Thought I would summarise one of our kid's Bonds that started in 2014 to see how it has been going. I usually ignore its growth as it is for the long term. It will mature in October 2024 (They will be 17 & 20 years old).
So the investment return over the last 6 years has been an increase of 17.6% so far (average of 2.9% pa). Have not had to declare the investment return each year nor will I have to claim capital gains at maturity.
If the child saves $10k, parent matches when it's for a home, car, college, business etc. NOT for fun stuff like holidays!
Story time: I was given a gift when I was 20 from a family friend who always hassled me to purchase a property. He would say to me "when you find something I will pay for the solicitor/ conveyancer costs". At the time it would annoy me as I just wanted the freedom to spend ALL of what I earnt. We lived in government housing and lived pension cheque to pension cheque. I was clueless BUT this one family friend who was a bit of a property king (we use to joke he owned half the suburb he lived in) was persistent with me and finally, at age 23, I got excited and scrambled enough money together to purchase a small apartment and went knocking on his door to collect the amount I owed the solicitor ... That started my journey. I was still clueless and made lots of mistakes but also was 'street/finance smart' compared to a lot of other 23-year-olds.
Looking back, it wasn't a lot of money for him but his confidence in me and knowing I could do it and that little bit of support with the expenses helped me so much. Thank you Peter! (stop writing for a minute while I blow my nose 😕 ). Sometimes it means the world to that younger person to know someone is in their corner and has faith to put some money down for them! How we will do this with our kids, I am not 100% sure but we will do something sometime.
Life Experiences - teach them young
Go to open houses and see the cost of property.
Assist with the family budget on all expenses. Equate the expenses to average salary per hour rate to see how many hours you need to work to pay for expenses.
I usually give them a range of our salaries or per hour rate so they can see how fast money can disappear. Once they start working they can understand so much more as you can use their per hourly rate to explain the cost of a phone or 'those shoes'. Ie, 16 year old may get $15 per hour, the cool pair of Nike Shoes costs $200, therefore 15 / 200 = 13 hours of working to earn enough for the shoes!
Other resources I have enjoyed and thought to share with my kids are:
The Richest Man in Babylon book that is set 4000 odd years ago with the same magic lesson we need to hear today. "Pay yourself FIRST"
Money over 50 Podcast. Specifically, ,'when do you give money to your kids' episode 96 & 97.
Just because others give to their kids doesn't mean you have to OR the grandparents make you feel you have to. Parents should not try and jump in to fix the problems.
The worst time to give kids money between 18-30 years old. A 35-year-old would benefit the most. By then you would have been able to build your own wealth to help yourself first and then you would have compounded to help them too ... some help when they are young'ish' and the balance when you're gone.
"Teaching kids how to handle money is about more than dollars and cents. It's about character and responsibility"
I hope some of these ideas and thoughts have inspired you and you can share with someone you know that could use some ideas. I am still on this journey and will no doubt have some more tweaks or learnings myself. I feel that my greatest gift to my children, after my love for them, is the gift to know how to stand on their own two feet to be strong, knowledgeable with how the world works and independently wealthy in all areas of their life. Money alone does not make everything better, however, knowing you have secured your financial situation and know where you are headed is such a gift to have. I wish it for all of us.
Please comment and let me know your thoughts on this topic that will be a never-ending story but oh what a journey! 😊