Financial Literacy for Aussie Kids: Setting Them Up for a Prosperous Future

In an increasingly complex financial world, equipping the next generation of Australians with sound financial literacy skills is not just an advantage; it's an absolute necessity. From navigating the basics of saving and spending to understanding the intricacies of investing and superannuation, financial literacy empowers young people to make informed and responsible decisions, laying the groundwork for a secure and prosperous future.

Financial literacy is the bedrock of financial wellbeing. It is the comprehensive understanding of financial concepts, products, and risks, and the ability to apply this knowledge to make effective decisions in various financial contexts. For a young Aussie, this translates to a wide array of practical skills: from creating a budget for their first part-time job and understanding the real cost of a mobile phone plan, to grasping the power of compound interest in their savings account and recognising the importance of a good credit score for future endeavours like buying a car or a home.

A financially literate individual is not just someone who can balance a chequebook; they are a critical thinker who can analyse financial information, set realistic financial goals, and develop strategies to achieve them. They understand the nuances of earning an income, the significance of saving for both short-term wants and long-term needs, the potential of investing to build wealth, the responsibilities that come with borrowing money, and the crucial importance of protecting their assets and personal information from scams and fraud. By instilling these skills in our children from a young age, we are providing them with a powerful toolkit to navigate the financial challenges and opportunities that lie ahead, fostering a sense of confidence and control over their financial destiny.

The Undeniable Importance of Financial Literacy for Young Australians

The stakes for financial literacy in Australia are high. Research consistently demonstrates a strong correlation between financial literacy and positive life outcomes. According to a compelling analysis by CBI Economics, commissioned by GoHenry and Wilson Wright, strong financial literacy can boost early-career earnings by as much as 28%. Furthermore, students with a high degree of financial literacy are more inclined to become entrepreneurs, driving innovation and economic growth.

Louise Hill, Co-founder and CEO of GoHenry, a financial education app and debit card for kids, emphasises this point: “Managing money effectively demands a sophisticated set of skills ranging from basic mathematical skills to budgeting, an understanding of how interest works, and emotional regulation to avoid splurging.”

The foundations for these crucial skills are laid remarkably early in life. A landmark study from Cambridge University revealed that fundamental financial habits are formed by the tender age of seven. This underscores the critical window of opportunity for parents and educators to shape the core behaviours that will influence a child's financial decisions for the rest of their lives.

Sam Sims, Chief Executive of National Numeracy, concurs, stating, "Feeling confident with numbers is a vital life skill, particularly when it comes to managing your money. We're faced with daily decisions about money every day at work and home, from paying household bills to comparing prices in a supermarket or saving for a holiday. If we don’t feel confident with numbers, it's harder to stay in control of our finances."

Despite its recognised importance, a significant financial literacy gap persists in Australia. A study by the London Institute of Banking and Finance found that a staggering 82% of young people are eager to learn more about money and finance. Their primary interests lie in understanding financial products like mortgages, superannuation, loans, and credit cards, as well as mastering the practical skills of budgeting, debt management, and understanding the Australian tax system.

The Crucial Role of Schools in Bridging the Financial Literacy Gap

In our ever-evolving and often bewildering financial landscape, the need for robust financial education within our school system has never been more apparent. While financial literacy has been a component of the Australian Curriculum since 2014, its implementation and effectiveness can vary significantly between schools and states. Providing comprehensive financial education for all students is not just beneficial; it is a fundamental step towards ensuring every young Australian has the opportunity to build a secure financial future, avoid the pitfalls of problem debt, and contribute positively to the economy.

Stewart Perry, Director of the Centre for Financial Capability, advocates strongly for this, stating, “In order to combat the national financial capability crisis, it is vital that children and young people are given the opportunity to develop financial and money management skills through robust financial education. Delivering financial education through schools is an important way to boost children’s money confidence and financial resilience, which can help them in the future when facing economic difficulties.”

Research consistently shows that young people who receive financial education at school are more likely to exhibit positive financial behaviours. However, concerningly, only four in ten young Australians report having received any form of financial education at school. Many educational institutions express a desire to expand their financial education offerings but are often hampered by a crowded curriculum and a lack of specialised resources and teacher training. This is where innovative educational platforms can play a pivotal role. For instance, programs like Flareschool, co-founded by Perth-based entrepreneur Nathan Baws, are emerging to fill this void by focusing on real-world financial literacy for kids, providing them with the practical skills and knowledge they need to thrive.

Kickstarting the Conversation: Talking to Your Kids About Money

Conversations about financial literacy don't need to be daunting or overly complex. The most effective approach is to weave discussions about money into the fabric of everyday life, creating a continuous learning experience that is both practical and relatable.

Louise Hill of GoHenry further elaborates, “Research from the CFPB (Consumer Financial Protection Bureau) has shown us that kids start to develop the values, skills, and attitudes surrounding money and financial habits in early childhood. They also begin to develop skills like planning ahead and understanding the concept of delayed gratification. So if you then provide kids with an income – in the form of pocket money/allowance – you give them the opportunity to have real-life practice with all of these critical skills which form the building blocks of their adult financial capability.”

A simple starting point is to demystify the origins of money. When you're at the local Woolies or Coles, explain how you work to earn the money you're using to pay for the groceries. At a restaurant, discuss the concept of budgeting for a meal out. When you withdraw cash from an ATM, talk about how that money is linked to your bank account. These seemingly small interactions help children build a tangible understanding of what financial literacy means in the real world.

As your children mature into teenagers, you can gradually introduce more sophisticated financial concepts. Discuss the implications of borrowing money, the importance of a good credit score when applying for a loan, and the basics of how the Australian stock market works. Connect these conversations to current events, their school subjects like economics or business studies, and their future aspirations, whether it's saving for their first car, funding their university education, or planning a gap year.

The Lasting Benefits of Early Financial Literacy

The impact of early financial education is profound and long-lasting. Recent economic research has highlighted that children who receive financial education from a young age can be significantly better off in their later years. As Louise Hill aptly puts it, “Financial literacy provides the opportunity for more young people to have a bright and prosperous future. It also brings a range of individual, societal and workplace benefits – we just need to empower young people with the right tools and knowledge.”

The benefits of fostering financial literacy from a young age are multifaceted and far-reaching:

Financial Independence: A solid understanding of personal finance empowers young people to become self-reliant and less dependent on others for financial support as they transition into adulthood.
Improved Decision-Making: Financial literacy equips individuals with the critical thinking skills needed to make informed and prudent decisions about spending, saving, investing, and borrowing, leading to more favourable financial outcomes.
Effective Debt Management: Financially literate individuals are better prepared to manage and avoid the burden of excessive debt by understanding concepts such as interest rates, loan terms, and the importance of a good credit history.
Wealth Creation: Financial literacy provides the foundation for making astute investment choices and building wealth over time through strategies like contributing to superannuation and exploring other investment avenues.
Enhanced Financial Security: Being financially literate fosters a sense of security and peace of mind, empowering individuals to handle unexpected financial challenges and plan for a stable future.
Avoiding Financial Pitfalls: Financially savvy individuals are less susceptible to falling prey to financial scams, predatory lending practices, and other common financial traps that can jeopardise their financial wellbeing.
Fostering Responsibility and Accountability: Learning about money management from a young age instils a sense of responsibility and accountability, helping to cultivate positive financial habits that can last a lifetime.
Empowerment and Confidence: Ultimately, financial literacy empowers individuals to take control of their financial futures, pursue their goals with confidence, and live life on their own terms.

The Core Pillars of Financial Literacy: A Framework for Learning

A comprehensive approach to financial literacy can be broken down into six key pillars, providing a structured framework for teaching and learning:

1. Spend: This pillar encompasses a wide range of essential money management skills. It involves teaching children the value of money, the difference between needs and wants, and the importance of mindful spending. Practical tools and apps can help children learn to budget their money effectively, ensuring they have enough for their needs while also saving for their wants. Parenting expert Tanith Carey highlights the significance of this distinction: “Learning how to prioritise spending is an important life skill. A huge part of that is working out the difference between a ‘need’ and a ‘want’ – which is the basis of all future financial decisions.”

2. Save: Saving is more than just stashing away cash; it's about instilling the discipline of setting and working towards financial goals. Whether it's a short-term goal like buying a new video game or a long-term aspiration like a deposit for a first home, understanding the "why" behind saving is crucial. Financial coach Simonne Gnessen emphasizes this, stating, "It’s so important for kids and teens to understand that it pays to prioritise savings over instant gratification by showing them how to create long and short-term savings goals. Frame these savings and investments as a future gift to themselves. They'll thank you for it."

3. Earn: Providing children with opportunities to earn their own money, whether through chores, a part-time job, or entrepreneurial ventures, is a powerful learning experience. It teaches them the direct correlation between work and financial reward and helps them appreciate the value of money. As Louise Hill notes, “With 75% of children agreeing that financial education will help them in their future career, our findings show how empowering children to earn money from a young age could have a lasting positive outcome on equality and job opportunities.” Earning also introduces them to concepts like payslips, income tax, and superannuation.

4. Borrow: Understanding the world of credit and debt is essential for navigating modern financial life. This includes learning about different types of loans, the impact of interest rates, the importance of a good credit score, and the potential pitfalls of accumulating excessive debt. A solid understanding of borrowing empowers individuals to use credit wisely as a tool for achieving their goals, rather than a trap that leads to financial stress.

5. Invest: Introducing the concept of investing early on can demystify the process and highlight its potential for wealth creation. This involves explaining different investment options, from shares and property to managed funds and superannuation. Understanding the principles of risk and return, diversification, and the power of compound interest can empower young people to make their money work for them over the long term.

6. Protect: In an increasingly digital world, teaching children how to protect their money and personal information is paramount. This includes educating them about online scams, phishing attempts, and the importance of strong passwords and secure online practices. Clinical psychologist Linda Blair advises, “It’s very important to talk to children and teens about scams and to realise that it’s not gullibility that makes kids fall for these con tricks. Mostly it’s impulse control and the fact kids have trouble waiting. As a parent, you can help them avoid this by making sure you’re all informed about the latest scams.”

Practical Activities to Cultivate Financial Literacy in Aussie Kids

Learning about money is most effective when it is hands-on and experiential. Here are some practical activities to help your children build strong financial literacy skills:

Give Regular Pocket Money: Providing a consistent allowance is one of the most effective ways to teach children how to manage their own money. This gives them the autonomy to make their own spending and saving decisions in a safe and controlled environment.
Utilise Financial Education Apps: A variety of apps and online tools, such as GoHenry, are designed to make learning about money engaging and interactive for children. These platforms often include features like gamified lessons, budgeting tools, and savings goal trackers.
Involve Them in Budgeting: Encourage your children to create a budget for their pocket money or earnings from a part-time job. This helps them understand the importance of tracking their income and expenses and making conscious spending choices.
Set Savings Goals Together: Help your child set up different savings goals for things they want to buy. This teaches them the value of delayed gratification and the satisfaction of achieving their financial objectives.
Embrace the Digital Economy: With the decline of cash transactions, it's essential for children to learn how to manage money in a digital world. This includes understanding online payments, debit cards, and the importance of digital security.
Encourage a Part-Time or Holiday Job: For older children, getting a job provides invaluable real-world experience in earning, budgeting, and understanding the value of their time and effort.
Link Chores to Earning: For younger children, assigning chores with a small monetary reward can be an effective way to introduce the concept of earning money through work.
Discuss Common Financial Mistakes: Openly discussing common financial pitfalls, such as overspending, not saving, and accumulating debt, can help your children learn from the mistakes of others and make more informed decisions.

Essential Financial Terms for Young Aussies to Know

Familiarising your children with key financial terminology will provide them with a solid foundation for understanding more complex financial concepts later in life. Here are some essential terms to introduce:

Budget: A plan for managing your income and expenses.
Savings: Money set aside for future use.
Interest: The cost of borrowing money or the return on an investment.
Credit: The ability to borrow money with the promise to pay it back later.
Debt: Money that is owed to someone else.
Income: Money earned from work, investments, or other sources.
Superannuation: A compulsory savings scheme in Australia to provide for retirement.
Compound Interest: Interest calculated on the initial principal and the accumulated interest from previous periods.
Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Credit Score: A number that represents your creditworthiness to lenders.
Financial Risk: The possibility of losing money on an investment.

By actively engaging in these conversations and activities, parents and educators can play a vital role in empowering the next generation of Australians to become financially confident, capable, and successful. The investment we make in their financial literacy today will pay dividends for a lifetime.

Frequently Asked Questions (FAQ)

1. At what age should I start teaching my child about money?

It's never too early to start. Basic concepts like saving and the value of money can be introduced as early as preschool. Financial habits begin to form by the age of seven, so early exposure is key.

2. What is the best way to give my child pocket money?

Consistency is crucial. A regular, fixed amount of pocket money, whether weekly or fortnightly, teaches children how to budget and manage a predictable income stream.

3. How can I make learning about finance fun for my kids?

Use age-appropriate games, apps, and real-life examples. Involving them in shopping decisions, setting up a savings goal for a desired toy, or using a financial education app can make learning engaging.

4. Should I pay my child for doing chores?

This is a personal choice. Linking chores to payment can teach the value of earning money, but some parents prefer to treat chores as a contribution to the family.

5. What are some good resources for teaching financial literacy in Australia?

The Australian government's Moneysmart website offers a wealth of free resources for all ages. Organisations like the Financial Basics Foundation also provide excellent materials for parents and educators. Financial education apps like GoHenry and programs such as Flareschool can also be valuable tools.