How do I teach my kids about money?

For younger children, this could be as simple as saving coins in a piggy bank but as they get older, teaching them the benefits of compound interest will help them budget for their future.

Opening a savings account for them, showing your child what a deposit is and how interest is earned are important lessons for them to learn.

Consider taking moneybox savings to the bank and make a deposit. This is a great way to introduce kids to what managing money is all about, make them responsible and start a culture of saving.

Paying children pocket money for doing chores around the house teaches them that money has to be earned it doesn't magically appear from ATMs.

Teaching children the difference between a need and a want can be their first step in putting a budget together. Help them understand what saving for a rainy day means and how economising can help them reach their goals sooner.

The benefits of compound interest

Compound interest is when you earn interest on your interest.

How does it work? If you have money in a savings account, that money will earn interest. If you don’t withdraw that interest, and instead leave it in the account, it will increase your account balance.

When your next interest payment is calculated, it is calculated on the larger account balance and earns even more interest. And so it goes on.

Get your kids involved in investing

Consider buying shares in trust for your minor child and give it to them for their birthday. Explain that this is their investment which will help pay for their education. Get them to watch the progress of the share price and plot it in on some graph paper.

Set up a dividend reinvestment plan (DRP) and show them how their investment can grow over time. 

A DRP is a plan operated by a company that allows shareholders to reinvest their cash dividends automatically in new shares of the company. 

A helping hand

Saving for an initial deposit on a property can be one of the hardest milestones to achieve.

Consider implementing an incentive scheme with your child to reach a savings goal of $50,000. You could match every $1,000 that your child saves with a $250 contribution to help them reach their goal sooner.

Savings accounts that reward you with a bonus interest rate if you deposit a certain amount each month, with a set limit on withdrawals, are a great place to start as they encourage and reward regular saving with a low risk return.

Term deposits are another low risk option that provides a fixed return for a nominated period. Rolling this over with the compounded interest earned is another way to help children reach their savings goal.