Often a sense of financial responsibility is passed down through family. Here’s how to instill an understanding of saving and property investment from a young age.
Despite property prices rising around Australia, it is still more than possible to enter the market and reach a point where you can afford your dream family home, especially if you start young. The earlier you start planning, the sooner you will reach your goals so it can be very beneficial to instill a sense of financial understanding in children, even from an early age.
According to Carol Russell, Branch Principal and Wealth Manager at Yellow Brick Road in Castle Hill, teaching children financial literacy puts the foundations in place for their whole financial life.
“It is too easy for children today to believe that there is a never-ending supply of money from that magic card that mum and dad produce to get everything they want,” says Carol, “The kids need to start understanding that the money has to come from somewhere first.”
Helping children become financially literate
According to Carol, pocket money is a good starting point for financial literacy. “We seem to be using actual cash much less these days, so it is good to pay the kids in real money until they can understand about the electronic kind. (Give them) coins too, so that you can separate it out into the part they can spend and the part they must save each week,” recommends Carol.
Using notes and coins gives children a visual understanding of the money they have. If you then put what they have saved into their very own bank account, they will be able to see it grow. Hopefully, it will make saving a regular habit that they carry into their adult life.
Carol’s advice is also to help your children create a savings goal based on something they need to save for. This helps them set up future habits for big picture goals.
Once they’re old enough (and if you can do it without having a family fight), board games like Monopoly are another way to show children how saving and investing can pay off. There are Junior versions available for younger kids to give them an idea of the concept.
Many financial institutions now offer child-friendly savings programs that pay high interest rates. Do some research and talk to your son or daughter about which bank may be the best to choose and why.
The next step from basic pocket money is pocket money children must earn. From an early age, tasks like stacking the dishwasher and making their beds help children appreciate the concept of honest work for honest pay. If they aren’t happy with the amount they’re making, you can talk to them about other jobs they can do to build their savings.
‘Money’ is not a dirty word
Many adults recall how their parents never discussed money in front of them. While it makes sense to avoid exposing children to drama and stress surrounding money, the entire subject doesn’t have to be a closed book. In fact, keeping children in the loop about day-to-day finances can put them on the path to a solid financial future.
“Generally young investors who are highly motivated have been taught the lessons on money management early,” says Carol, “(they) have been encouraged to look to saving for a deposit from their first pay day.”
“Remove the stigma of talking about money
and include children in positive discussions.”
Involving children in family finance discussions and getting them to help with decisions about things like weekly grocery shops and budgeting for a family holiday can give them an introduction to financial decision making.
The benefits of teaching kids about property investment
Carol has seen the benefits of an early start with property investing. “If a young investor purchases in their early twenties and keeps a property for around 10 years before they’re ready to settle down and purchase a home to live in, assuming the original property has continued to rise in value, they will then generally have an asset to sell/use as security to purchase the home.”
Young investors will also have a good history to demonstrate to the new lender when looking to make a larger purchase. “Lenders look favourably on a good saving or loan repayment history,” says Carol.
“A ten-year saving plan may seem like a lifetime to a child but they’ll never regret putting one in place. “
If young investors have set a strategy where they’re prepared to purchase their first property in a location where prices are more in their range, and to do so when they are quite young, they will be far ahead of the person who waits to buy their first home 10+ years later.
In Australia, minors (those under 18 years) are legally allowed to own property in their own name. However, from a lender’s point of view, this isn’t always practical, as lenders are unable to enforce a contract with a minor should something go wrong. The more common route is for parents or even an extended family group to buy property jointly with a child or children. (In Europe, it’s not unusual for parents to put property in their child’s name almost from birth.)
Purchasing early allows property to be paid for much earlier in life and leads to a more financially secure retirement. As Carol says, when it comes to investing in property, “Time is your best asset!”
Guiding your children to financial security
As with many aspects of life, parental influence is a huge factor when it comes to young people’s goals and achievements.
Once your children have grown out of the pocket money stage and are earning money from their first job, give them advice and help them establish a savings plan. A simple rule is to put money aside for savings first, to pay your bills second and to use leftover money for socialising and ‘wants’ third. Carol suggests teens come up with savings goals and write them down on paper, in their phones or anywhere that will remind them of what they’re working towards.
Purchasing a first home may seem like an insurmountable hurdle for young people but if they have the discipline they need from an early age it will be second nature to continue to save as their income increases. As a parent, instilling an understanding of how saving works and what they can achieve may mean you are able to downsize your own home sooner rather than later.
If you’re interested in introducing your child or teenager to the world of real estate, contact the team at Stone Hills District. We ‘re excited to share insights about the property ownership journey with the next generation.
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