(Australian Associated Press)
Your teenager swiped your credit card intending to pay back the hundreds he spent with earnings from an imagined future job.
Although she’s 30-something and earning a six-figure salary, your daughter can’t get a loan because her credit rating was ruined by an old, unpaid sharehouse bill for a phone she didn’t use.
These are some real examples of what can happen when children or young adults fail to grasp the value of money and how to protect their financial reputation.
Teaching your kids how to manage money responsibly will help them navigate their own finances as an adult.
ASIC’s senior executive leader in financial capability Miles Larbey says it’s important for parents to teach children the value of money, and the difference between needs and wants.
“A good way to have these conversations is using real life contexts, for example when you’re out shopping or doing the family budget,” he said.
“It helps children understand how money works if you explain what you are doing and why.”
Opinions differ about whether to pay pocket money, and how much parents should give.
In some households, children contribute to daily tasks and pocket money might be paid for extra work, or to reward especially kind gestures.
Another approach is to pay children a small amount of pocket money each week but require them to bank a set portion and donate some to charity.
Mr Larbey said if you decide to give your children pocket money, you could help them draw up a budget and set a savings goal.
He said parents should ensure their teenagers understand core financial concepts such as the risks with using credit, having savings in case of an emergency and tracking mobile phone and app spending.
TEACHING CHILDREN THE VALUE OF A DOLLAR
– Explain to children when at the supermarket that you can get cheaper or more expensive versions of the same product
– Explain that money withdrawn from ATMs has been earned, and it is not just a hole in the wall that spits out cash
– Put a portion of their pocket money into a high interest savings account
– Get your teenager to pay board once they have a part-time job, and use that to help cover household bills or deposit it into a savings account they can access down the track to help with a large purchase
– If helping a teenager buy a car, ensure they understand and can afford to pay the running costs like petrol, insurance and registration
Sources: Wealth advisory group Omniwealth, ASIC’s MoneySmart website