Key Points
- Saving for your child’s future security can start from reducing your own debt
- Get professional advice before becoming a loan guarantor for your child
- Raising financially savvy kids, sets them up for better money management as adults.
- What are the best ways to help your child buy their first home?
- How can you find trustworthy financial advice in Australia?
- Why is teaching kids about money important?
- How early should children learn about saving and budgeting?
Many parents aspire to secure their children’s financial future.
Although, in many cultures, it’s common for children to support their parents as they grow older, in Australia, parents often aim to give their children a financial head start. For example, helping them buy a first car, study, or get into the property market.
Saving for their university studies is not as common in Australia as in other countries, thanks to government loan schemes, which many higher and vocational education students rely on.
Housing is the most common saving goal for parents nowadays, according to David Sharpe, Chair of the Financial Advice Association of Australia, a peak body for financial advisers.
“Ten years back, it was still weddings and cars, nowadays it's getting people into a property,” he says.
Moneysmart is a government website providing independent information to Australians about financial decisions they need to make. Credit: courtneyk/Getty Images
There are also government and community programs that can help families save for future goals, for example, matched savings initiatives or support payments through Centrelink to help with education or living costs. You can find more information about these on the Services Australia and Moneysmart websites.
Regardless of your saving goal, it wise to consider reducing your own debt first before trying to save separately for your child.
“Because if you pay down your debt, maybe you've then got the capacity to draw down debt later on to give to your kids and so you're saving interest as opposed to trying to earn it outside,” Mr Sharpe says.
What are the best ways to help your child buy their first home?
When it comes to buying a house, some parents will help their kids with the deposit required.
But there are things to watch out for if you’re lending your child money, Moneysmart’s personal finance writer Shevaune Marchingo says.
“Think about making a plan in writing to outline how much you gave them and how they will pay it back.
“Having this can also help to make it fair if you have more than one child that you’d want to help financially.”
Check for any tax benefits when committing to long-term investments, like insurance bonds. Source: Moment RF / Traceydee Photography/Getty Images
“It's important to be confident in your child's ability to repay the loan,” Ms Marchingo says.
“If your child can't pay the loan for any reason, you might have to pay it all back instead.”
There are various financial products for parents setting up saving goals for their children, like savings and term deposit accounts or insurance bonds.
Before committing to financial decisions, consider getting professional advice.
How can you find trustworthy financial advice in Australia?
A financial adviser should:
- keep you informed and help you achieve your goals
- advise you on the fees you'll pay and what you get in return
- advise you on how they'll manage your money
- consult you on decisions
“They'll also discuss how much risk you're comfortable with, which is really important when you're deciding what to do with your money,” Ms Marchingo adds.
If you can’t afford private financial advice, free financial counsellors can help you make a plan. You can find them through the National Debt Helpline (call: 1800 007 007).
A simple exercise if you're at the shops with your child is to get them compare the cost of two items and help you make a choice together. Credit: rudi_suardi/Getty Images
Why is teaching kids about money important?
For some people, even having money conversations can be uncomfortable.
Caroline Stewart is the CEO of Ecstra, a foundation which runs financial literacy programs in Australian schools.
She says parents should have money conversations with their kids as early as possible.
“It sounds a bit crazy to be talking about money lessons even at preschool, but kids do understand the concept of needs and wants and things that they want to buy even from a very early age.”
Everyday tasks like going to the supermarket are opportunities to teach your kid real-life money lessons.
“If you can instil in kids the curiosity and the fact that talking about money is not taboo, then that sets them up to become more confident dealing and talking about money,” Ms Stewart adds.
You could also give your child a small weekly allowance and encourage them to save a portion of it for something they want. This helps them understand the value of money, choice, and delayed gratification.
Using appropriate language and examples for your child’s age, like saving for an excursion or a birthday party, you can introduce financial planning learnings early on, Dr Zeka says. Credit: Maskot/Getty Images/Maskot
How early should children learn about saving and budgeting?
Learning about saving should be part of your child’s financial literacy early on, Dr Bomikazi Zeka say, who is an Associate Professor in finance and financial planning at the University of Canberra.
“It's always good to save for a rainy day, but, you know, as a child, what exactly does that mean?
“Having those conversations from a household point of view, parents can start to socialise children around the reality of financial planning, so that they see that in fact the bank of mum and dad is not some endless resource.”
Ultimately, involving children in your family’s financial planning, leaves them a legacy of financial literacy.
And it sets them up for being in better control of their financial life as adults, Dr Zeka says.
“When we have these conversations quite early on, they become financially confident adults who can make the right decisions and assess the trade-off between risk and return.”
No matter your income or background, it’s never too early, or too late, to start talking about money and planning for the future together as a family.
Disclaimer: This information is general in nature. Seek professional advice before making a financial decision. If you are in financial stress, call the National Debt Helpline on 1800 007 007.
Only deal with a licensed financial adviser. You can find one through Moneysmart’s Financial Advisers Register.
Find money tips in other languages here. For a free online budget planner, visit the Simple Money Manager.
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