5 Big Reasons Why Its Important To Teach Your Child About Money
Hi, I’m Neil Edmond, co-founder and CEO of MoneyTime. With this blog my aim is to help parents teach their kids how to make good decisions with their money. For those of you that know me well, you’ll know I spent 3 years building a financial literacy programme called MoneyTime. What and how you teach your child about money depends on lot of things but I hope to at least convince you that it’s essential your child is equipped with the knowledge, skills and confidence they need to enter adulthood prepared to make good financial decisions.
The mountain is steeper for our children
There’s no doubt about it. It’s been harder for our generation to get ahead financially than it was for our parents; and it’s going be even harder for our children. Here are 5 good reasons why it’s so important that your child learns about earning, saving, borrowing, lending and investing to be able to get ahead in today’s economy.
1. Instant gratification
We live in an age of instant gratification where we’re able to access almost anything within a few clicks. Our children are more familiar with paying with plastic than using in cash where it’s easier to get a sense of how much you’re spending and what is left. Young adults have easy access credit and the concept of borrowing to live beyond their means is largely accepted. All this can lead to bad spending habits, that results in student, personal and household debt.
Take student loans for example. The average student loan balance is $22,065 (Source: Juno Kiwisaver), that’s a $22,000 handicap before graduates even start earning. Kiwis are now going into their 30s, 40s and 50s with student loan debt they’ve not paid off. The question we have to ask ourselves is, have we done enough to equipped our youth with the financial knowledge they need to make wise financial decisions or are we allowing them to learn by costly trial and error?
2. Poverty
You’d like to think we live in an affluent country. In 2019, 63 percent of respondents reported their income was enough or more than enough to meet their everyday needs. They were asked about their capacity to spend money on accommodation, food, clothing, and other necessities. In contrast, 36 percent said their income was just enough or not enough to meet their everyday needs (Source: stats.govt.nz). That’s a lot of people just struggling to get by.
Less affluent children are less likely to have experience with, or positive role models for, saving and investing. They spend what they earn, not realising there is a way forward financially to improve their lives. The good news is that the number of people on benefits in New Zealand has remained relatively steady for the last 5 years.
Source: Ministry of Social Development
However that doesn’t change the fact that many kids who are are growing up in inter-generational poverty simply do not have the knowledge, confidence or role models to haul themselves out of the poverty trap.
3. Debt
Our young people are more at risk of incurring bad debt than any previous generation. They have greater access to cell phone plans, online shopping, credit cards and high-interest loans with little knowledge to help them to make better life choices. They are preyed upon by payday loan sharks and influenced by all invasive consumer advertising. The debt is mounting up and the financial education our young adults need on how to avoid and manage debt is largely lacking.
New Zealand Households Debt To Income
source: tradingeconomics.com
As a proportion of GDP, our mortgage and consumer debt adds up to more than 90 percent. Not only does that put us ahead of the US and UK, but our households are more indebted than those in Spain, Greece and Italy.
Our Reserve Bank talks about household debt as a proportion of disposable income. Today that ratio is at 166 percent, up from 100 percent 20 years ago (Souce: NZ Herald). Mortgage debt is a large chunk of this but personal debt is following this trend.
4. Housing prices
Fifteen years ago (2004) the median house price was 4 x the median gross household income, it’s now 6.5 times the median gross income. In Auckland, fifteen years ago the median house price was 5 x the median gross household income, it’s now 9 x the median gross income! It’s no wonder the number of first home buyers is dwindling! Our kids are going to need a plan early and make wise financial decisions if they’re going to get on the property ladder.
Source: https://www.interest.co.nz
Covid-19 is likely to have put a long overdue brake on house prices since this graph was published but they were looking scarily high.
5. Financial opportunities
Our children have more financial opportunities now than ever before. There are a bewildering array of banking products, job opportunities, investments and insurance schemes. So many in fact it can be intimidating for a young person, and adults, to even know where to start on their financial journey.
Now for the good news
It’s not all doom and gloom, just a reality check. We can improve the outcomes for the next generation by giving them the financial know how they need to give them a head start on their financial journey. Learning from an early age how to be good with money and to make your money work for you can mean the difference between financial security and a lifetime of struggling to make ends meet.
So now that you know financial education is important for your kids but how do you teach it to children if financial literacy is not your strong point? MoneyTime’s programme teaches children aged 10 to 14 the important life skills of how to manage and grow their money. We’ve built a comprehensive online, self-taught education program that makes it easy for parents while still being very affordable. MoneyTime uses a ‘game’ format to make learning financial literacy skills fun for kids. They’re rewarded with virtual money for answering questions correctly then get to make decisions on how they spend it; whether to shop at virtual stores, donate it or invest in things like further education and property that will increase their long-term wealth. In this way MoneyTime enables children to learn the consequences of their financial decisions, without risk, or fear of failure.
Already over over 400 New Zealand Primary Schools are using MoneyTime to teach financial literacy to year 7 and 8 students and the feedback has been overwhelmingly positive.
MoneyTime is valued at $89 per child, but for a limited time you can purchase any of our annual subscriptions and receive 25% off using the promo code 7D347X7 at check out.