Sarah Nulty: How to teach your six year old about money
AFTER getting into big financial troubles in her 20s, Queensland mum Sarah Nulty is determined to see her six-year-old daughter learn from her mistakes.
"I didn't have money conversations when I was growing up, so when I got out of school - when the ability to get credit was much easier - I got straight into a personal loan for some personal items,'' Sarah tells us.
"I then topped it up again to get a car which was later written off, leaving me with debt and nothing to show for it.
"I also managed to get three credit cards, and by the age of 22 I was about $28,000 in debt, and I wasn't earning enough to keep up on the interest repayments, together with paying rent etc.
"It got to the point where I refused to open any mail and answer the phone, and was nearly homeless.
Her own financial struggles prompted her to commit to getting a job at a bank.
"I literally walked into branches, handing my resume in to apply for a teller role.
"Luckily, I managed to secure a role and quickly moved through the ranks.
"Being in the branches, the staff were an incredible support, and taught me about money as well as helping me to setup a plan to pay off my debt and get myself ahead again.
Now a financial adviser, she is determined not only to help herself get ahead but also those around her.
That passion especially extends to her young daughter Annalise, who is already learning the value of saving to buy what she wants.
"I am now so passionate about teaching people, especially kids, about money, trying to ensure they don't fall into the same mistakes that I did.
"And it also was the reason for starting money conversations with my daughter at such a young age."
Cashless transactions make money confusing for kids
According to a recent Commonwealth Bank study, 77% of parents agree that 'digital' or 'cashless' transactions make it more difficult for their child to understand the value of money.
Six in 10 believe their kids' understanding of the value of money is less than their own at the same age.
Kids are receiving more pocket money today than their parents did i.e. $5.88 p/w in 2016, compared to just $1.67 p/w in the 1980s.
According to the 2017 School Banking Study, expectations around chores also differs as three in four parents (76%) were expected to complete chores to receive pocket money compared to 83 per cent of children today.
There are also some big changes in what children are saving for.
Almost half (42%) are putting money away for electronic devices such as smartphones, tablets and virtual reality headsets, whilst the top items for their parents were books - such as Roald Dahl's The Twits and The BFG - and clothes such as scrunchies and neon tracksuits.
Aussie kids are also showing they've got great savings skills, saving the majority of their pocket money for big ticket items (56 per cent of funds), rather than spending it (44 per cent of funds).
More than half of Aussie parents (53 per cent) let their kids make spending mistakes to teach them lessons about the value of money.
1. How do you teach kids about saving money. What are some good first steps?
One of the biggest problems we see nowadays with kids learning about money is the use of actual cash versus plastic. I remember my daughter playing with her toy shop set with a friend and playing with the money in the till to buy fruit etc.
Her friend didn't recognise the cash as the way to purchase the items, and said : "That's not how you buy things! You've got to use your card!".
It's important that we start by introducing kids at a young age to the value of real money, see us using it (and yes, that can mean a bit of a change for us!) allowing them to purchase things with cash i.e. buying the milk at the corner store with coins, so they can see how money works.
Playing shop is a great way to start. We started playing shop from a really young age - around two years old.
Simply using plastic coins in exchange for something else teaches them about barter and trade - the basis of any economy. They can start to understand the value of those coins as they get older.
We also had our own little "shop" - instead of physical money - as pocket money until she was old enough.
She would get a set number of plastic coins or buttons for certain jobs i.e. tidying up her teddies.
At the end of the week, we would set up the shop (which had trinkets and goodies that I had either found, been given, purchased cheap or even things like vouchers for "one free dessert" or "one movie with Mummy") and she was able to trade her buttons/coins for whichever goodies she could afford.
We didn't set values on the items as much, as the focus was more on that she could only get one or two things, not everything.
2. How young can you really start teaching kids about money?
We made a point of letting Annalise hear conversations about money from a young age, so she understood that bills exist, that we earn money from working, and that we choose to save money so we can have things like holidays.
She was also involved at a young age in giving some money away, so if we see someone on the street she always asks for some coins to give, and she has to give a small percentage of her pocket money away to a charity.
She started earning pocket money from four years old, and from six years old now, her pocket money is her only way of getting toys etc. outside of birthday and Christmas.
3. How do you use chores to teach kids about earning money
We started the conversations quite young about the fact that we work for our money, so she knew when people work, they earn money.
Pocket money is no different, so she always knew if she did her chores she would get her "salary". She could also earn a bonus if she did extra chores.
It has taught her that money doesn't just grow on trees, and so she started valuing what she got from us a little more, as she knew we didn't just reach into a bottomless pit of cash and get it for her - it was time that we had to spend away from her in order to earn that money!
4. What about investing? Can kids really learn about investment at a young age?
Annalise started learning about investing at around age five. It was a very basic conversation, based around the ability to earn interest, so one weekend I told her I needed to borrow $1 from her pocket money.
But if she let me, I would pay it back to her the next day with an extra $0.50 on top!
We talked about that being an "investment" - she had put some money away where she couldn't use it for a period of time, but she was able to get it back with extra on top for her troubles.
We then started talking about her saving her pocket money so she could buy a more expensive item - we offered to invest her money, so if she put her money with us for a week, when she got her next week's pocket money, she'd get the two weeks all up plus an extra $2.50!
5. What are three key things you would tell a child?
a) Pretend the ability to borrow money doesn't exist! You don't need a brand new car that depreciates like crazy when you first start out - you'll end up paying back about 2 x the amount you borrowed, for an "asset" that is worth about an eighth of what you paid!
b) Start the habit young, putting a minimum of 10 percent of whatever you earn away - you'd be surprised how quickly it adds up!
c) We tend to absorb extra funds as they come available i.e. you get a pay rise, suddenly your expenses increase. If you DO get into debt, as you payoff loans, straight away start redirecting the money you were paying into the loan into your savings account. You're already used to spending that money, so start putting it to good use.
6. Cash v online? Are kids more careful about using cash than say online money?
At a younger age, definitely. Young kids struggle to comprehend online money, as it doesn't physically exist, but parents are doing more to help kids understand digital money management and cashless transactions.
Responses from Annalise Nulty, aged 6
1. What are your goals in saving money?
Saving for fun things I want.
2. What would you tell your friends about saving money?
It's fun - Mummy and I do a shopping trip, we have a milkshake and I get to spend my money on things for my friends and me.
3. What's the most important tip your mum has shared with you?
To save some of my pocket money - last year at Christmas I got to have a lot of extra savings that I could spend and it was great! I got to get a toy that I didn't think I could afford!