Children are never too young to start learning about finance. By starting with the basics, you can help build the foundations for financially literate and confident kids.
Instilling good financial literacy in kids can go beyond the basics of budgeting and saving. Teaching children to be smart with money is a skill that will help them throughout their life. Whether it’s introducing the concept of money to primary school students or teaching insurance to high school students, there are plenty of resources to help with teaching children about money.
As the OECD's International Network on Financial Education stated: “Many 15-year-olds [...] are likely to face growing complexity and risks in the financial marketplace as they move into adulthood.”
Understanding risk is an essential part of making informed decisions . If there’s one thing we’ve learnt from 2020 and its economic uncertainty, it’s that financial literacy is crucial for helping plan for our financial future.
How to teach children about money and insurance
So here's how to teach your children the ABCs – or in this case, the TALs – of insurance.
T is for talk about it
Numerous studies have shown that kids’ money habits are formed before they get to high school and that their parents are often their most influential teachers – both via direct conversation and modelling.
So it's important to be transparent with our children because they understand, and worry about, more than we give them credit for.
In fact, a survey of 20,000 Australian children found that 43% worry a lot about their future. The second most common concern was about family (39%), followed by health (37%).
Whatever a child's worry, it's important to be upfront about scary stuff, says BeyondBlue: “talk through their fears and answer any questions truthfully. Don't sugar-coat the facts”.
Talk about the different things you might want to protect, such as your home, car, income and health. Teaching children about the protections you’ve put in place can help alleviate worry and stress they might have.
A is for Act
Budgeting and saving form the foundations of understanding finances. You can start by introducing your child to the 50/30/20 rule that they can apply to their pocket money or part time salary. 50% of their money goes towards what they need such as food or board, 30% goes towards what they want such as a sweet treat and 20% goes towards saving for something special.
Once you've taught your child about budgeting and they've finally managed to buy that item they've been saving for, it’s time to give your child a solid introduction to how insurance works. To help them understand risk and insurance, start by asking them how many weeks’ worth of pocket-money or work it would take for them to replace the item – say their phone or games console – if it got lost, stolen or broken.
Now talk about how they can protect it: make sure it’s stored in a safe place.
Finally, explain that, even if they do their very best, sometimes things go wrong.
As a learning exercise, sit with your kids and help them work out how much it would theoretically cost if they were to put aside a small amount of money each week to make sure some of their possessions – within a certain price range – could be fixed or replaced if anything bad happened outside of their control.
L is for learn the lingo
Once your child understands the basics of insurance and the rationale behind it, you can start discussing different types of insurance and how it’s there as a safety net for unpredictable times.
Teenagers and older children can start to see how different factors can affect premiums that could influence their own health and lifestyle choices. Learning the language around money and insurance can help demystify finance for younger people. When teaching insurance to high school students, try explaining the meaning of terms such as assets, risk, excess, and liability to familiarise children with common phrases around finance and insurance.
If your child – like many – is worried about what would happen to them if you got really sick or died, discuss the various policies that you have in place to protect you.
For example, your Income Protection Insurance is to make sure their schools fees are paid if you get sick or hurt and couldn't work for a while.
Your Life Insurance policy would provide your family with a lump sum payout if you were to die or become terminally ill.
Below we've compiled a short list of resources to help you explain key terms and principles.
● Financial Basics Foundation resources: this Australian not-for-profit has a module on insurance and managing risk. You can register as a parent to access it free of charge.
● ASIC's Money Smart website has insurance and life insurance factsheets suitable for young adults.
● Games: there are a number of board games – including Monopoly and The Game of Life – which will introduce your children to financial risk concepts.