Teaching Your Kids About Debt, Gratification & Priorities
By: Robert Garrett
Teaching your kids financial skills is one way to set them up for their future. Australian households owe $2.34trillion (as at March 2018), the second highest level of household debt in the world; only Switzerland has more. In 2016 around one third of Australian households were classified as ‘over-indebted’.
How do we even begin to address this love affair with debt? Governments don’t provide education about responsibly managing household debt, so it’s up to us as parents to teach our children about how to manage money. If we can help them understand from a young age that we don’t spend more than we earn, then we’re setting them up for success later in life.
Give, Save, Live
Since our kids were about seven years old, we gave them a few dollars pocket money to be divided in to three categories – GIVE, SAVE, LIVE.
The first ten percent is for giving to others. Some religions teach this principle; even investment and wealth creation experts such as Robert Kiyosaki (author of best seller Rich Dad, Poor Dad – over 58million copies sold) recommend the practice.
Whatever your motivation, it challenges the ‘consumption assumption’ – everything that comes into my hands is for me to consume. We live in a world with lots of need, and kids need to learn whenever we’re blessed, we need to be a blessing to others.
The remainder is split between LIVE/discretionary spending and SAVE – long term saving i.e. in the bank towards their first car etc.
A few years ago, we were at the shops and our boys wanted to buy a Rubik’s Cube. I showed them that they could buy the exact same cube from eBay for a quarter of the price, although they’d have to wait a week for it to arrive. I tried to reason with them that it had taken months for the two of them to save that money, but standing in the shops with the item in their hands, they wanted it NOW.
As their dad, I didn’t want to see them waste their money, but my wife pulled me aside and said, ‘they need to learn, let them buy it’. And she’s right; I’d rather they learn about impulse buying on a $20 Rubik’s Cube than on a more significant purchase later in life. Sometimes we think we’re doing our children a favour by shielding them from failure or from the consequences of their decisions, but the truth is we’re robbing them of the opportunity to learn some of life’s great lessons.
Money & Priorities
You know what? You can’t have it all. The sooner children learn this lesson, the better off they’ll be. Life is about priorities particularly when it comes to how we spend our time and our money. In our house, we have lots of conversations like this – ‘sure you can buy that $40 soccer ball, but it’s going to delay that mobile phone you’re saving up for; which is more important to you?’ (Teaching them to prioritise means not giving them a loan so they can buy that item before they have the money).
Sacrifice – Lead by Example
Sacrifice is not a popular word these days, but around ten years ago, we determined to eliminate all personal debt, with the exception of our mortgage. We sacrificed by selling our car (my pride and joy) and replaced it with a lower spec version for a third of the price and used the balance to clear all personal debts.
Every month we make sure we clear the outstanding balance on our one credit card. If we want something, but don’t have the cash, we save and wait until we do. Of course, most of us aren’t in a position to pay cash for a house, so borrowing money from the bank for an asset that is (hopefully) appreciating in value, is entirely reasonable.
Living Within Your Means
Learning to live within our means is a key life skill that we all need to learn.
Teaching that to our kids and giving them the space to experiment around priorities and delayed gratification when the amounts (and the consequences if they maker poor decisions) are small, are some of the best life skills that parents can give their kids.
Article supplied with thanks to More Like the Father.
About the Author: Robert is an Australian author of More Like the Father. Robert and his wife Cath have 3 children; his two great passions are strengthening families and equipping and encouraging fathers.