Now might be a good time to think about how and what your children will learn from your financial behaviour.

By independent financial planner Tim Mackay.

“Christmas begins about the first of December with an office party and ends when you finally realise what you spent, around 15 April of the next year.” (PJ O’Rourke)

As Christmas approaches, regular readers will be looking forward to spending well-deserved time with their family. We have many clients with young families and others with mature children. Here are key financial lessons that we have learnt from both.

Look in the mirror

We’ve learnt from our clients that children don’t listen to what you say about money, they do what you do. They are sponges that will one day mirror all your financial habits, good and bad.

If you save, they will save

Do you save for things you want or do you just rack it up on the credit card to keep up with the Jones’? Do your kids mimic you by pestering for money for the latest fashions and gadgets? Does your family regularly sit down and budget or do you just routinely insert a plastic card into ‘magic’ ATMs that dispense seemingly limitless money?

Ask yourself – with your actions are you inadvertently setting your child up for financial problems in later life? One tip to encourage savings is to offer a 20 per cent match on money saved in a savings account.

No allowances

Whatever your intentions, a child thinks they are entitled to their allowance because of their age, because their siblings get it or because they live in your home. Kids need to know that money is earned and allowances don’t teach them that. Instead, link their ‘work pay’ to specific chores around the home. They need to learn, just like in the real world, nothing is free – no work, no pay.

Don’t supplement their ‘work pay’ – you are teaching them to save and to live within their means. Pay them in coins – this helps their addition and teaches them the value of retaining small change. Encourage them to put some aside for charitable giving. Openly discuss money issues from the age they start to show an interest.

Just say no

“I once bought my kids a set of batteries for Christmas with a note on it saying, ‘toys not included’.” (Bernard Manning)

Accountants are good with money and we want the best for our kids. However, even if you are good with your money you can mess your kids up if you spoil them. Showering your kids with material goods does not equate to good parenting. Teaching them tough lessons about money decisions is good parenting, with lasting benefits. Stop adding to their pile of toys that will be landfill for millions of years; kids need to learn financial restraint and they need to learn they can’t afford everything.

Older children are still children

Unfortunately, the days of children in their early 20s leaving the nest and financially standing on their own two feet are long gone. Instead we have the ‘boomerang’ generation flying back to a crowded nest. As part of our service to our clients, we discuss with our clients’ children issues such as budgeting, saving and cashflow management. While many are unwilling to hear this from their folks, they can be more receptive to hearing it from professionals.

A financial headstart

Some parents give their children a financial headstart in life, especially with their first property. Again, we encourage parents only to do so if they first motivate their kids to save themselves on a co-contribution basis.

Bailing them out

Letting children make financial mistakes can be one of the most important lessons you give them. They tend not to repeat mistakes if they have to live with their decisions. If they get in trouble financially, don’t just bail them out – it simply reinforces dependency and any resulting debt will not help your relationship.

If you give in to your emotions and bail them out, make it conditional on them taking a basic course in budgeting so they don’t end up in the same trouble again.

The best for your kids

We all want our children to grow up happy, confident and able to make decisions for themselves. We should also want them to grow up financially secure and to be able to make smart decisions about their money. I learnt the value of money from my parents, and hope to pass it on to my two children.

Thank you to those readers who provided feedback and ideas through the year – I have enjoyed your comments. I wish you a happy, healthy and safe Christmas and a prosperous 2013.


Independent financial planner Tim Mackay

Tim Mackay BEc (Hons) MBA CA CFP SSA
I am an independent financial planner, SMSF expert and company director. I thrive on providing independent, expert financial advice to my wonderful clients. With international investment banking experience at Deutsche Bank and UBS in London and New York, I was recognised as SMSF Advisor of the Year by Independent Financial Advisor Magazine.

To contact me, speak to my team on 02 8084 0453. Please feel free to connect with me on Twitter. You can also visit the my colleague’s (and sisters) website.