Your Teenagers Getting Cash for Christmas?
[Image Credit: Max Pixel]
This year, the Australian Bureau of Statistics expects 62% of children will be gifted between $50-$200 each for Christmas. They expect a further 22% to be gifted more than $200! With Australia entering its 25th consecutive year of economic growth, and the average credit card debt ever increasing, it makes sense that gifts for loved ones are becoming more and more lavish. So, what do we do when children (ours or others' we care about) receive such gifts? Well, we have a couple of options...
We can join the excitement and talk about all the things we can buy on the shopping spree (they might never be able to afford <insert random item here> again!)
We can put it in a savings account "for a rainy day"
We can use it as an opportunity to teach them money principles (but how?)
We can tell them nothing, and they will usually either follow their parents' or their friends' behaviours
Doing nothing and letting children spend their gift at will was definitely the most common approach I saw growing up. I remember friends taking hundreds of dollars (which was even more back then!) and blowing it all on arcade games and Go Karts. We felt like millionaires! We would spend an entire day there, playing against each other (multiple players... what luxury!) and game after game of Go Karts. We really did have a fantastic day, and by the end of it we thought it was money well spent... Why? Because we genuinely believed we would never again have the chance again. Seriously!
We grew up knowing families always scraping by, who whenever they were able to get a couple of hundred together (usually some sort of windfall like winning a competition or payrise/redundancy), would go on spending sprees rather than re-connecting their electricity or telephone. It sounds strange, but it's what we saw. So what sorts of money habits do those childhood friends have now? It's a mixed bag. Some are repeating their parents, others have decided they're not going to be the same and have had to deliberately learn new routines (some are now my clients), usually not without some sort of financial pain first.
The 50-40-10 Rule
This is easily the best and most tested way to give children better money management foundations. Save 50%, spend 40% and donate 10% to your kid's favourite charity. This technique helps kids understand the difference between saving and spending. For younger children, use three jars so the money in each category is visible. It's helpful not only to see when you don't have any money left (ie. stop spending when it's gone) but also to have money in a jar that you don't touch. For older children, use bank accounts for some or all of the three categories. It's important to transition from seeing money in jars, to seeing money in a bank account because children need to recognise the numbers on the screen as actual money. It's not fake (and definitely not 'free') money. If you do this with children you care for this Christmas, I'd love to hear how it goes! Merry almost-Christmas,
My Income Organiser