Teaching Kids About Money: How We Handle Pocket Money

Foreign Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I am joined, as always, by SJP Scott Jarrod Parry. How are we today?

Not as good as you, Jesse, but better than most, that's for sure.

I'm sweltering. It's 4. 41 degrees here today. Oh, air conditioning's not working.

Like breaking a sweat. That is not good. I think anything over 40 is too hot. I mean, anything over 30. Over 30 is too hot, actually.

Yeah. Nice to be a nice 28, 29 degrees.

Heaven's where I'm at 26, 27. I want to be outside and near water.

Yes. Delightful. With a beer in hand. Perfect.

Oh, kids. All right.

Some people have Zumba. Some people do not.

For those people who do not, you're obviously smiling a lot more than the ones who do at this point. I always said that the hardest things in life are the best things in life, and I think kids are the ultimate example of that. They obviously teach us as many lessons as we think we're there to teach them. So the number one thing with kids, and a lot of our clients are asking, is, what do we do with money? And how do we sort of help our kids get off to the right start financially?

Yeah, it's a great question. And it's kind of easy just to go, oh, I just pay them pocket money, and that's it. But, you know, what kind of lessons is that teaching them? And then what is that helping to set up for their future? And you've got such an opportunity, too. And it's like, just. Just have a bit of a plan. Put a structure in place now and just see that through over there, you know, formative years, and then you'll really help them get off on the right foot when they're out on their own.

Their financial blueprint is created by watching you, not listening to you.

Yeah.

And so they're watching what you're doing, how you're spending, your reaction to things as they pop up, emergencies, et cetera, et cetera. So, like, everyone's sort of gotten the best advice, but if you're not walking to talk and they're just. They're watching you, man. Like, that's. That's what they're learning from, is your actions, not your words. And so we want to show you guys some actions which we think could be a good idea. We're using it for our kids. It's not the right way or the wrong way. Everyone's different. Everyone's got a different model of the world. I'm just telling what and how I'm doing it for my kids. Jess, you're going to run through what and how you'll do it for your kids and we'll talk about some other ideas that other clients are doing and then just pick what you like. Whatever feels good. As I said, that doesn't mean that this is right and what you're doing is wrong. It's just I think doing something is better than nothing.

Yeah, absolutely. Have a plan.

Have a plan. Which leads us into the next point perfectly. A plan. A money management plan or a money management system. I personally feel the best thing I can do for my kids is to give them a system in their formative years on how they should be managing their money. And so what that looks like is for, let's say, $10 a week, I actually give it to the kids for them to actually map out and budget for certain different things that as adults we have to deal with. We have to deal with tax. So out of the $10, $1 goes in tax. Welcome to the real world. The second dollar will go for electricity bills, utilities. Another dollar will go for rent, slash home. And then that leaves sort of $5 left over, which 50% should be going towards savings, investing, and the other 50% should be on function, lollies, toys, whatever that may be. And so giving that sort of structure to say, hey, this is how your money's going to be segmented. And today it's $10. But when you leave school, you might be earning a thousand dollars per week. And that same percentages going to those different buckets, I feel is a life skill that they're going to be able to use from the get go. And they've always thought this is all way, we've always done it and we're just going to continue doing it this way. So that's what I'm doing is just giving them that sort of, okay, what percentage of your money goes to these sort of areas? Getting them used to budgeting from day one. What are you doing with your kids, Jess?

Yeah, okay, great question. So I've been talking about this a lot lately with other friends and stuff and what works and what doesn't. So first and foremost, and as it goes back to you, what you said at the beginning, where they're watching us and, you know, they're learning from our actions. So the number one thing I would say is talk about money in so, so many households, especially in our generation and older, it was taboo to talk about money and that we have to change that. You must talk about money. It's something everybody deals with every single day. And it's really. It can have a really big impact on people's lives. So really having those conversations about, you know, what you're earning, what you're spending it on, how much things cost, like, you know that just. Just what it costs to run a life nowadays. So, yeah, have those conversations early and then though, and then your kids will be open to having those conversations as well in the future. So that's. Number two is my husband and I made the decision that we weren't going to pay our kids for chores because the chores, we always say, if you take care of the house, the house will take care of you. Like, we're all very fortunate to live in these beautiful houses. And it's like you have to take care of it. That's just a part of life. And it's everybody's. Everybody's involved. Everybody's going to have, you know, pull their own share. So we're not. I'm not going to pay you for chores. I'm going to pay you for extra. So, you know, I've seen lots of people have a list of kind of like, like a menu of extra things that the kids can do, like wash the car or, you know, take the dog for a walk or X, Y, Z. And they can earn those extra dollars. I like the, the pay for pages. So however many pages in the book that you read, I'll give you 50 cents a page or, you know, it's relative to their age, et cetera, but really kind of promoting that, that reading side of things. So finding something like that that's just outside the normal base house chores and paying for that I really like. And then once I do pay them, it's always like 50, 51 is into a physical piggy bank, which is actually a bit of a struggle because nobody has cash anymore. But I suggest you go to the bank, get $100 worth of $1 coins, and then just have your giant sack like Santa Claus and carry it home. But you want to. Physically, you want to. And I have the piggy bank see through, so. So they can see it. And you want them to see that money increasing. They want it. You really need to. It's really hard with kids because everything's digital now. We need to connect, like the value of money. Them understanding this is a thing that's building and growing. And then when you take money out, you see that pile reduce and it's like that connection, if you can give that to them early on, is phenomenal because to them, money's abstract. They never see it. They just get things and they have no concept of what cost or what you had to do to get it and all of that. So, yeah, so physical piggy bank money going up and they can spend it as they choose, when they choose. Then the other 50% of the money is put into an online investment. We've talked about it before, the power of compound interest. Like, it's just phenomenal. We always said if you could do one thing different, it would have been. I would have started investing when I was 10 and I would have just done a little bit all the time consistently. And now I would have a gigantic nest egg, which I do not have. But anyway, so you can set up some. A lot of the kind of, you know, managed funds have little kids accounts that you can set up nowadays. So I have one for each of my kids. They can log in and see that anytime they want. I could show it to them and so they can see that balance increasing. But it's really teaching them that you must invest it is the most critical thing you can do. Invest that money and leverage that power of compounding just so the two sides of it investing and a physical piggy bank. That's what I'm doing for my kids.

Awesome, lucky kids. I like paying to learn and grow. I think that's a really great concept. And the physical nature of seeing those coins go up and if you want to take something out of it, you can see those coins go back down. It's a really good, like anchor for them to feel and see and touch that money.

Can I just add one thing whilst I mention it? Having a physical piggy bank is a bit of a pain in the ass. The other thing you can do is a chart on the wall and they literally draw a coin each time they earn one. You just got to be careful that they don't add a few extras every again. But that's. That's another way of kind of connecting that physicality to it.

But yeah, and there are different apps like there's raise, there's bamboo, there's spriggy, where they're built for this to help with kids and budgeting and investing those sort of things. So there's so much tech there that they can actually have that on their phones if they're at that age and see the account growing. And once they start to see compound interest in actual effect, where they Seeing that they're earning money for no effort, time or energy, just passive overnight like whilst they're sleeping. I think it's really powerful to, for them to understand is that the money needs to be growing. Like you can't save your way to wealth. Savers are losers is what rich dad, poor dad says Robert Kiyosaki because your savings are not keeping up with inflation. And so even another idea for clients that they've been saying that they're doing for their kids is whatever brands their kids are using, they're buying those companies or stocking those companies. And so whether it be Johnson and Johnson for this or whether it be Apple or whatever it may be, Google meta these options where whatever the kids are using, they actually owners of those companies and telling to the kids, you own that company, you own that company. That's a really unique feeling for the kid to feel like, oh my God, I'm using this product which I'm an owner of the company. And so that's a really good sort of mandate to sort of bring in. So they start to feel the best and smartest way to be financially secure is to own assets that grow with time and for them to feel that they can own the companies that they're already using the products of. This applies to the moms and dads as well, by the way. And that's really, really important. Say, hey, rather than giving the kid an iPhone, buy shares in Apple and those sort of assets that continue to grow. So yeah, they're just some ways which we feel you can help set your kids up. There's so many different options. These aren't the right ones, but they're just something to think about.

Can I add one more in there? I just thought of it. Then maybe I'm allowed. You'll allow it. One more that I'll say is that the other thing that can be really difficult for kids is delaying gratification. Right. And so you almost want to reward them for hitting kind of milestones and. And it's hard to kind of get to a milestone and not want to spend all that money. Yeah, I've kind of said to the kids as well is if we kind of once you hit X amount of dollars, I will match it or I'll match another or. And it's a great one. On birthdays you say every birthday, whatever you've been able to keep in fund or in your, your piggy bank, I will match it. And so you're actually rewarding the act of saving and investing and it's Kind of like that's the reward. That's the. That's them getting that. That kick instead of actually spending it and getting a toy or something.

And the great thing about that is it doubles a compounding effect. It really puts it on steroids.

So, yeah, what you promised, though.

Yeah, no, I am very aware of just. Oh, wow. Geez, Timmy, you're a great little savior. You've got 27,000 there and to get a remortgage here. Yeah, yeah, yeah, yeah. I mean, like, that'd be a great problem to have, but yeah, just these. These lessons. Like, I know most of you guys didn't have your parents doing that for you. I didn't have that from my parents. Jess didn't have that from her parents. So, like, we've just learned this in the trenches for 23 years, dealing with thousands of Australians and seeing their kids. And ideally, if we can just put those sort of structures and systems in place now where they get to see the value of money, how they can grow that money, and as a result of that mindset from day dot, like, it's just such a huge leg up in life.

Yeah, absolutely it is. Last one. Thank you so much, and we'll see you next time.

Bye.