Talking to teenagers about financial responsibility

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Every parent wishes the best for their kids. Financial responsibility is a vital part of preparing them for the future. This applies more so to migrant parents living with their children in foreign lands. Teens are the perfect years to really understand responsibility in all its many forms. Given the COVID-19 restrictions we are already spending much time at home. It is a great opportunity to breach the topic with the kids.

Parents know best

That we live in uncertain times is amply clear. Many of us are grappling with unpredictability in our incomes and livelihoods. Those of us with better financial planning are faring better. Preparedness is a product of long term financial strategy. It is not learnt overnight. It takes time to understand all your investment options, risks, and outcomes.

Moving to a foreign land is a significant financial decision. As a migrant parent you have overcome this formidable challenge. That makes you the perfect teacher to instruct your children in financial prudence.

Start them young

Teenage is a critical formative period. ‘The Longitudinal Study of Australian Children’ presents research conducted jointly by the Department of Social Services and the Australian Institute of Family Studies. It found that teenagers who start saving at age 12-13 are more likely to turn into savers later in life. Showing them the ropes of financial planning and money management at this age is important. Not doing so can leave them ill-equipped to manage money, and susceptible to fall into debt traps. Teaching them to set aside a portion of their allowance would be a great start.

Lead by example

Kids absorb what they see – often subconsciously. They are more receptive to parents who walk the talk. The best financial guidance is to model the desired behavior. Raisingchildren.net.au, a popular parenting blog with 90,000 monthly visitors, recommends ‘modeling of responsible attitudes to money’. Children are unlikely to see managing money as important if the parents themselves act carelessly. Involve your teenagers in your savings and investment choices. Discuss your financial planning with them. That planning involves kids as much as it does the parents. For example, the plans for kids’ college education are an important long term financial consideration for most families. If the teenagers show maturity parents may let them have a say on matters. The youngsters would more willingly step into adulthood and responsibility if their opinions are valued.

Detachment

Young persons are often swayed by material things. The newest smartphone, gaming console, or apparel collection can often take undue priority. Parents must show kids the benefits of delayed gratification. Author Beth Kobliner outlines how to do this in her New York Times Bestseller ‘Making Your Kid a Money Genius’. Rather than buying children whatever they want, ask them to set aside some of their allowance. Make them pay some part of the price of the coveted object. This can be very effective in helping children start a saving habit. Not allowing kids to have instant gratification all the time is more likely to instill long term planning and the sense of accomplishment which follows.

For the long run

As children grow into adulthood, they must understand and shoulder their financial obligations. At some point they will start families of their own, and aspire to own homes. The tools which enable them to do all this are best learnt during their teen years. Owning a home is a sizable goal, and one that demands long term planning. For example, one can start saving AUD 200 each month at age 20. Add AUD 100 monthly every 10 years. In other words save AUD 300 monthly starting age 30, AUD 400 per month at age 40, and so on. At a modest bank interest rate of 2.5% these small monthly savings can add up to AUD 332,000 by age 60. Millions of expat parents live and work abroad, away from their families. Many of them send remittances via international money transfers intended for investment towards home ownership in their native lands.

Another one of life’s big events is retirement. According to the Association of Superannuation Funds of Australia (ASFA) one must set put aside AUD 12,000 every year for 30 years for a comfortable retirement. Understandably these are only estimates. What’s important is that kids grow up to have the long term perspective. Parents must help teenagers understand how life insurance helps protect the family from risk, and health insurance offsets the ill effects of poor health. Early teens are the perfect age for parents to impart some financial wisdom to children.