Setting Kids Up for a Strong Financial Future
09 Apr, 2023
As you know, I’m always talking about pūtea (money). In my world, it’s extremely polite to talk about money. It’s not a big deal to talk about money. It’s helpful to talk about money. Money talk comes up all the time. All the time. Why? Because pūtea is something we use every day of our lives, and most of us are trying to get better at it. Paying attention to it is right up there on my list of most important things, right behind what I have for breakfast, lunch and dinner. In fact, without money, I can’t have those three meals a day. So, yeah, it’s a big deal.
This week I wanted to write about how I teach my daughter, who is under the age of 18, about money. And I want to give the grown-ups a wake-up call because you have the biggest influence on younger people, but you might need to take your role more seriously. If some of us had to do an NCEA course in personal finances, we would get a ‘not achieved’ grade. This means it’s hardly surprising that we don’t have the knowledge about money to hand down to those younger people in our lives, meaning that some of them go on to make a right hash of their pūtea.
If you don’t have children of your own, please keep reading because I know that some of the best money wisdom I have ever been taught had come from adults outside of my family in the shape of friends of my parents when I was young and still at home, or co-workers once I entered the workforce. We all have a part to play in teaching others, and this podcast episode shows how I helped a young family friend out when they had questions about pūtea.
The first step to enabling our tamariki to succeed financially is to sharpen our act.
You were young yourself once and will agree that there was nothing more frustrating than an adult telling you one thing and doing another:
“Don’t swear at your sibling”. Then they get frustrated and swear at you.
“Get off your device and get some exercise”. While they sit on the couch watching TV for four hours a night.
They tell you to “save your money” while splitting a payment across two credit cards at the grocery store because they have maxed out their cards.
Encouraging you to take on a student or car loan while bemoaning the burden that debt places on others.
If you’re an adult lacking financial skills, it’s never too late to improve your education to set an excellent example for others. You need some new information to improve your education, and you might even take the opportunity to learn alongside your tamariki. My blog is full of resources, but probably the most quoted is The Barefoot Investor book by Scott Pape. You will find it at your local library.
Maybe my antennae are tuned in to younger people because I have a 15-year-old at home, but I know I can’t help but observe how others, both young and old, use money. And I feel it would be remiss of me not to encourage my daughter to learn from the mistakes of others (myself included) so that she is not destined to repeat them. I also want her to know about financial wins because I want her to repeat those things. I don’t buy into the lazy parenting technique of sitting back and watching kids stuff up financially (credit cards, car loans, after-pay, student loans, living pay-to-pay) and saying that failure is the best teacher. That’s rubbish, and the financial stakes are far higher today than 10 or 20 years ago.
Maybe I’m tuned in because THE most common sentence I hear from my audience is, “I wish I had known more about money when I was younger because I would have been in a far better financial position today”. People resent that no one ever taught them the few basics they would need to prevent a lifetime of struggling with money.
This is why I’m such a stickler for openly discussing money in our whare with no question being off limits. And I don’t even wait for the questions to be asked! We just talk about stuff; money is just one of many conversations. Today I wanted to share with you one week's worth of conversations and give an update on how my long-suffering daughter (it can’t be easy having me as her money-focused Mum) is coming along with her knowledge of money.
But first, I love a good analogy.
I have talked with my daughter about tidying her room hundreds of times. Is her room tidy right now? No! If her Granny is coming to visit, does her room get tidied, heck yes! I don’t even have to remind her. So, she knows how to do it; she is just not yet consistent. But one day, she will be.
It’s the same with money. We have had hundreds of small conversations, and she has had tonnes of tiny examples. Slowly, those good money behaviours are starting to come out. When it counts, she is excellent with money.
You don’t learn about money by osmosis. Someone has to teach you, and I would rather she learn useful skills before she leaves home. And I would rather Jonny, myself and other trusted adults teach her financial literacy than let the marketing and sales department of a global company or bank have a crack.
The use of money is everywhere, and it can be both simple and complicated. It takes a long time to learn how it all works, and it's the role of adults to make sure that, over time, we impart helpful information to build up their knowledge, one conversation at a time.
Everyday conversations about money
Today, our conversations are tailored to a 15-year-old and here is a taste of the myriad of ways we touched on pūtea in our home over the last week.
She went grocery shopping with Jonny. They wrote a list before they left based on meals we all thought we might like to eat this week. She wanted to go mainly because she wanted to do some baking, and she had to endure a whole grocery shop just to ensure she got the exact ingredients she needed. Life’s tough. There is huge value in finding the things on your list and comparing prices. She looked at the receipt and knew we had spent $251 for one week's groceries.
She was paid $72 for her part-time job (she works two hours a week downtown and is paid fortnightly). She knows that tax gets taken off (to run the country), and some also goes into her KiwiSaver (for retirement), leaving her $18 for each hour worked. She has also become fully used to investing 50% of her take-home pay. I was on my laptop, so she asked me to log into her bank (she knows her login details by heart now) so she could transfer half of her pay, $36, to her Sharesies account. Any time she earns income, she invests half. Many conversations got us to this point.
Because she is a minor, her Sharesies account is a sub-account from mine. The next day I got an email saying that money had arrived in her Sharesies account, and I texted her to remind her to go into Sharesies (she knows those logins, too) and invest it. I got an “OKxx” back. And a photo of our foster puppy. Awwwww!
She does not have the Sharesies app on her phone for cyber safety reasons, only accessing it via my computer. Why? Because I explained to her that investing is a big deal. She has over $5,000 in her account now, and to access her account, she has to log into mine. I want her to sit down and focus on ensuring she is logging in and investing carefully. This is after watching her wrongly guess her banking password and almost lock herself out. Some things need your full attention, and banking and investing are two such things.
She told me that she had just received a pay rise at work. They emailed her to inform her that the minimum wage has just increased, and her new pay rate will be $22.70 an hour. She was pretty happy with that, and although I knew the minimum wage was rising on April 1st, I was pleased that she came and told me about it. For reference, I again told her I earn $26 per hour at my job, and Jonny’s on about $40 an hour. Plus, we make extra income from this very blog. We talk about the money Jonny and I earn and the cost of things we buy because that puts things in perspective with the money she makes.
A local family asked her to pet sit a few days this week, and she asked for my help to reply to the text. She’s pretty shy, so texting “grown-ups” is still a bit of a big deal, and she wanted to get it right. She loves the work (feeding a smoochy cat and a character-filled rabbit), but customer relations doesn’t come easily to her. But that can be learned, and she is getting there slowly. She earns $20 per day for this work (far too much if you ask me), but the homeowner reads this blog and knows she will be investing half, which is incredibly generous of her!!!
On the 1st of the month, as usual, I updated our family net worth spreadsheet. I have always tracked her net worth separately, but showing her my spreadsheet is basically meaningless to her. So, to engage her in her own money, I have created a graph showing her monthly totals. I’m tracking her:
Cash in her wallet - I ask her to do a quick count-up. $20.
Money in her main bank account. $1,010.
Cash in her second bank account, a sinking fund where she is saving towards a new phone (she does not even need a new phone yet, but I explained that one day she will, so she is just getting prepared early). $425.
KiwiSaver balance - Jonny and I have always invested $40 a month, plus she now adds to it from her income. $15,713.
Sharesies balance - I have stopped contributing to this; all the money invested now comes from her income. $5,652.
Smartshares balance - Jonny and I have always invested $50 monthly into an NZ Top 50 ETF in her name. $7,822.
What does she think of my graphing skills? She is interested/not interested. But she looks at it!
I’ll take that as a win! One day she might decide to track her own money, but for now, this works.
My hand drawn graph showing my 15-year-old daughters net worth progression over time. Why are there blank spaces? I forgot to update it. Nobody’s perfect!
She is observant of others. She told me that at lunchtime, her friends at school were discussing how much money they each had, and she rang me up for her current balance ($30,642). This conversation occurred because one of their eftpos cards had been declined at the school canteen, leading to questions about who had how much money. Everyone has different amounts of money, and each of them spends money differently. There was no judgement; comparing what she has with her friends was just interesting.
Then there is the ongoing Uber Eats delivery service from the playground to the school canteen, where her friends, who can’t be bothered lining up, pay other friends to stand in line for them. Payment is that they get to buy any item they want, which she does about twice a week. I can’t work out if this is the beginning of a fool and their money will soon be parted, or rich people won’t line up for food. Time will tell, I guess. I was right to teach my daughter to keep her banking details private and secure because in order to shop for each other, this bunch have memorised the other's pin numbers!
We had a really good conversation about the value of people's knowledge and time when I had the chance to sign her up for a short art course in Cromwell. Because the course had received some funding, the tutor had decided that we got to choose how much to pay. I decided to pay much more than she would have had she been paying out of her pocket, and I bought an extra ticket so she could take a friend. We both explained why we chose the amount we did, and it gave me a chance to be generous to her friend, something I am always encouraging her to be.
A sticky topic this week is the use of a math tutor. We have a Year 13 student on call to help if she gets stuck, and we pay her $30 per hour. I don't know the going rate for a tutor, but she is a fantastic young woman who drops everything to jump on Zoom to help. She helps out about every three weeks. My daughter, given she earns $18 an hour after tax and KiwiSaver thinks that $30 is a lot for Jonny and I to spend, especially seeing she knows I only make $26 an hour, so she was avoiding asking to contact her or was cutting their lessons short. This is just another opportunity to discuss money, skills and good use of time, and we have turned a corner with her asking for help when needed and making the most of the tutor's time when they are together.
A conversation that we keep briefly coming back to is the art of spending money because she has the propensity to hold it too tight. It’s not surprising that she does this because Jonny and I often discuss planning for big purchases, such as a holiday and a car update. But we are holding back on each until we can pay cash for them. I take time to explain to her that this is not us being tight with money and not wanting to spend it; this is what budgeting in action looks like. Money can be deployed in many ways, and we need to think big purchases through for the economic good of our whole whānau. And how when we plan ahead, we buy the things we want. It might be a considerable expense or a small one, but we show her that once we decide to spend money, we enjoy doing so.
In turn, I see her processing her own earning and spending, but she gets a bit stuck. A case in point is a new item of clothing that she wants to buy for winter. She is looking online at all the options and all the prices and worrying about spending $60 when she could just spend $30. She wants the $60 option but only wants to spend $30 or less. I see her doing this and take it as a chance to explain and remind her that because she, like us, is investing a portion of her take-home pay into long-term investments (Sharesies and KiwiSaver), then the money in her bank account is there to be used and enjoyed. If she wants the $60 item, she can buy it and enjoy it. Money is just a tool, that is all, but having money lets you have so many more choices. It's the plethora of options that is tripping her up.
In case you are worried that I’m constantly on her case about money, I can assure you I am not. I can spot a teachable moment and keep it simple, practical and fun, but I also know when to back off. I know I have the balance right because she comes to me if she needs help, even if she does begin some conversations with, “don’t get too excited, Mum, but I do have a question about money….” I do my best to hide my excitement. You can see that a lot of our chat is general, but when she has a specific question, I answer it as succinctly as possible.
We are really lucky that via this blog, we have met many people who have retired young. Early retirement is definitely a much-discussed topic. This prompted the question this week from her, “but what if I want to work” and off we went on a discussion of working because you want to, not because you have to. There is quite a difference. That progressed into investing, compound interest and how you earn income from investments. And that we are helping her get a good framework set up while she is still young so she can create choices for herself when she is older.
Building a Financial Foundation
I tell her that we are helping her build a financial foundation and giving her the skills and knowledge to take it over, and I anticipate that she will do that well before she leaves home. Why? Because that way, if she stumbles or has questions, we are right on hand to guide her. And it also means that when she begins to spend large amounts of money, most likely on tertiary education, or she begins to earn more, once she hits the workforce, she knows what to do.
As her parents, we know that if she goes on to study, it will be expensive, and it feels remiss of me not to help her plan. I overheard a school careers advisor stating that ‘every kid has to get a loan and spend the next 20 years paying it off; we all did’, and I was dismayed. This year, from listening to parents whose kids are off to study, I have gathered that accommodation costs are between $15,000 - $20,000 per year. Fees are free in the first year and $5,000+ (depending on the course) from the second year. But of course, these young adults need money to live, so there goes another $5,000+. We talk to her about these costs and explain that this is why she is saving into Sharesies and why we are saving using Smartshares; to offset those costs if and when they arrive. We have always expected that we will help her get through study without taking on student loans. We don’t know what shape our help will take yet, but we are also pretty clear that she is pitching in too. And she is already pulling her weight by taking on a little work during the term and longer hours in the holidays. With a few working summers remaining before she finishes school, plus with money already invested and compounding, she is well on her way to growing a decent-sized nest egg for whatever her future might be.
I have been hugely surprised at just how much money already flows her way via her little part-time gigs and longer stints of working in the holidays, and if she can learn to manage small amounts of money well, then over time, she will easily manage much more significant sums of money too.
Something worth mentioning is that I don’t do a single thing with her money that she does not know about. I either explain what I’m doing and ask her permission to do it, or preferably, get her to do it while I watch on. This gives her understanding and ownership of her own money, which is really important because I never want her to hand over the management of her money to someone else. By all means, she can work collaboratively with someone else, i.e. a spouse, like she sees Jonny and I do, but not give up control.
Many people save money for their kids in secret and then get a huge shock when they hand over $10,000 at the age of 20 and watch them blow the lot. Of course, they do, as they don't know it took their parents 20 years to save it. It’s like a Lotto win: free money. My daughter and I were walking and talking, discussing how much we thought it would cost to go to Europe for a month. I guessed it would be about $30,000. She said, ‘geez Mum, that’s my entire net worth, and it took me 15 years to make it’. I had to turn away and smile, but I was secretly delighted. She gets it. She knows that money takes time to make, so she is mindful of how she uses it.
She has had Sharesies for many years now, and only more recently has she begun to really grasp the point of it. Before that, I would deposit half of her pocket money into her Sharesies account and then have her sit with me as we invested it together. As you can see, now she can do all of that herself, and because she has done it for so long, she feels ownership of it, which is what I want. Even if she doesn’t wholly understand how KiwiSaver works, I still encouraged and advised her to invest a portion of her income into it, explaining that one day when she retires FIFTY years from now, she will be minted. It comes back around to that conversation we had about compounding interest. This prompted another fabulous question from her: ‘what if I want to retire early and can’t use that money?’ Another chat ensued about investing in things that are not KiwiSaver but can provide you with an income over time, e.g. ETFs or Index Funds.
And on and on we go! The conversations are endless.
Yes, there are many skills we all learned after we left home, but there were many vital skills that we shouldn’t leave home without. Money is undoubtedly one of them, and both Jonny and I are doing our best to give her the broad money knowledge she needs so that whatever life throws her way, both opportunity and setbacks, she has the money smarts to adapt.
Hopefully, by me outlining what we talk about in our whare, you feel more confident to broach the subject of pūtea with your children. In the comments below, I’d love to hear how you are teaching your tamariki about money.
