One of the more unusual aspects of raising children is a general reluctance to discuss certain issues. Certainly, some topics are best handled when the kids are able to understand (the birds and bees, why you don’t talk about politics and religion in polite company) the basic concepts, but talking about money is also a taboo topic for families. Perhaps because talking about money falls into the politics and religion category, parents have a hard time figuring out how and when to have the conversation.
It’s one thing to teach your children the importance of saving money for treats, whether the treats are a new game or a new car. In some households, teaching the kids about giving is also important. Child-rearing and financial experts agree that a set of budget buckets for saving, spending, and giving is a great teaching tool for explaining the value of money.
Where many families fall short is in offering more sophisticated ideas about money management as the children become young adults. For one thing, it could be awkward when your kid asks how much money you make. Some parents speak freely about income and finances with their offspring, but most prefer speaking in broader terms about money.
The Crushing Disappointment of the First Real Paycheck
Once you’ve covered the adolescent basics of the budget bucket, get ready for the next phase of teaching your young adults about their money—specifically, the difference in what they’re making and what they actually bring home. There’s no sadder parenting moment than explaining to your teen that no, their paycheck is the right amount, it’s just that the government is a killjoy.
If you are ready to teach your kids budgeting and saving strategies, it’s never too early to learn the difference in gross and net pay, and older teens can certainly understand concepts like super, retirement planning, and tax advantages—even if they can’t really afford much yet.
The first time your teen gets a real paycheck, go over it with them. Explain what the various withholdings are for, and offer examples—such as, federal taxes paying for things like mail delivery and the military.
Superannuation Knows No Age Boundaries
That first paycheck is the prime opportunity to start teaching your teen about superannuation and investing. Anyone under 18 who’s making $450 gross income in a calendar month, and working 30 hours a week or more, is eligible for super contributions—10% of their before-tax income goes to their super account. In July 2022, it’s expected that a Royal Assent will eliminate the income threshold for employers to contribute, so anyone under 18 will automatically contribute to their super.
Most kids don’t think about where their money comes from in retirement. Teaching them early about how the government mandates supers and how both employers and employees contribute over the years instills the values of saving for retirement at an early age. Tap your calculator app and show them how a few hundred dollars invested in a super at 16 or 17 will burst into thousands in the distant future when they retire. Or how investing independently now can help them buy a house later on.
If your child works for cash, you should still set up an independent super account for them to invest some of their earnings. Why a super account and not a personal one? Tax advantages.
Teach Older Teens About Salary Sacrificing
A teenager is probably not making enough money to think about the concept of deferred compensation, or salary sacrificing, but you can introduce it in terms of professional athlete’s compensation plans. This is also a good time to point out that while your teen may not command multi-million dollar salaries, it’s the athlete’s financial advisors who structure those giant contracts with layers of delayed payouts.
Granted, a 17-year-old who just wants to save money for a car isn’t going to be all that interested in the tax and super advantages of salary sacrificing, but simply explaining that it’s something you do from time to time takes it out of the realm of sports stars and puts it squarely in your living room.
While you’re discussing salary sacrificing, touching on things like tax advantages is a natural segue. If your kid’s eyes glaze over when you bring up things like statutory contributions and pre-tax sacrificing, that’s okay. You tried, and you can try again later. It always pays to start teaching kids budgeting and saving strategies in the simplest of life’s lessons first.
What About Credit Cards?
The only thing a teen wants more than a driver’s license is a credit card, and most parents harbour similar feelings about the two. It’s more difficult now to explain the dangers of plastic in a digital world, but make sure you have prudent card habits. Do the math for your kids—calculate the interest for a year on a $5,000 balance at 22% interest. Point out that it is akin to throwing twenties out the car window, then make sure you’re paying off your balance every month.
Set a Good Example For Kids Budgeting & Saving
The best way to teach your children fiscal literacy is to practice it yourself. This means following the same rules you set for them—don’t spend more than you have, save as much as you can (and then add 10%), budget to buy special toys, and plan for the future. Super Network is a resource you can go to not only for advice on your investing, but also open investment accounts for your kids. Your financial advisor will welcome the opportunity to see a new generation saving, budgeting and investing for their futures.
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