Buying a first home is much more challenging for young people today. Two in three Australian adults believe today’s generation of children and teens will be worse off financially than their parents. As a caregiver, it’s important to equip your teenagers with essential life skills like budgeting and saving, along with the right mindset for long-term wealth creation. We’re sharing some of our healthy financial tips that you should teach your teenagers, before they leave home, to help set them up for a safe and secure future.
5 steps for teaching financial literacy to teenagers
The current generation of teenagers are growing up in a world of digital finance—where ‘tap and go’ and online shopping prevails over cold, hard cash. So, what financial literacy lessons can we teach young people for whom money is a few numbers on a screen?
1. Understand their financial position
Before jumping into the complicated world of loans and interest, cover the basics—what financial leverage do they have? The first place to start is to help them understand how to budget based on what income they have, whether that’s a casual job, Centrelink payments or simply pocket money. According to the Australian Bureau of Statistics, teenagers working part-time take home an average of $315.50 a week, so it’s important they learn how to manage that income responsibly.
Resources such as MoneySmart’s Budget Planner are a good place to start. You and your teenager will need to report all income and expenses to receive an annual spending breakdown. Visualising expenditure will help you both determine where to begin when it comes to realistic savings goals. Teach teenagers they can spend responsibly on the things they want while still stashing money away.
2. Start good saving habits early
For teenagers with the financial support of their parents, saving some of their income may not seem as appealing as spending it. Overcome this resistance by emphasising the importance of a cash buffer from an early age. As an adult, they’ll thank you for teaching them the value of having a nest egg for emergency purposes stashed into an interest-earning account.
The rule of thumb is always to put away 20% of your income for a rainy day. That may seem steep, but when you consider the unexpected costs that go along with sudden job loss, home and car repairs or urgent medical expenses, they’ll be glad they’ve planned for the worst.
3. Keep financial communication open
In many families, money is a taboo topic. School only scrapes the surface of personal finance, so if you don’t talk to them openly about money, who will? It benefits both you and your teenagers to be open and honest about money—so fill in the blanks where they may be genuinely oblivious to the workings of the world.
Start with conversations about your income and expenses. Show them how much you earn and what portion of your income goes towards bills, savings and necessities. Delve into splurging and address where you think you could cut back or spend more.
Before your kids enter the workforce, initiate conversations about pay rates, tax and superannuation. Here are some teenager-friendly definitions to help them understand their rights and responsibilities.
- Salary: Salary is the base rate of pay for a job, which varies based on age, awards or registered agreements. It is essential that teenagers know the award rate for their first job, as well as the conditions under which they’re employed (part-time, casual, full time).
- Income tax: A portion of your pay goes toward Government-funded initiatives such as public health care. This is called tax. If you’re employed, tax will be automatically deducted from each payslip. This is known as Pay As You Go (PAYG). Every taxpaying person is eligible to receive a tax return if they have paid ‘too much’ tax for the year.
- Superannuation: Around 10% of your pay is transferred into a retirement savings account called superannuation (also known as ‘super’). See more details on the salary thresholds here. You can only access super when you retire. Your chosen super fund invests that money into assets such as shares, property, bonds, cash, private equity and infrastructure. You earn compound interest with super, meaning the returns accumulate on the funds invested – essentially earning ‘interest on interest’. This means the earlier your kids start working and contributing to their super, the greater their long term returns and retirement nest egg will be.
4. Utilise financial tech
Gone are the days of Dollarmites—our teens have savings potential right at their fingertips. Banking apps, budgeting apps and even investing apps are a great idea for teenagers who already spend hours a day on their phones.
Start with the bank app that holds their savings account. Turn transaction notifications on so that your teenager is alerted every time money enters and leaves their account. This puts tracking their income and expenses at the forefront, promoting a wealth creation mindset. Most major banking apps also have initiatives such as separate goal saver accounts or spending breakdowns to encourage savings. Financial tech isn’t just for tracking active income—it also comes in handy when looking to create a passive income. Under your supervision, you can introduce your teens to investing through micro-investment platforms such as Raiz and FirstStep, which create dividends out of spare change. Have conversations with them around investments and passive income creation early to set them up for future financial success.
5. Understand the power of debt
Debt is an unavoidable part of life, so your teen should understand the difference between good debt, bad debt and inefficient debt. Debt is considered good when used to purchase wealth-building assets, like a home, and bad when used for consumption, such as a holiday. Inefficient debt is any debt, good or bad, that is reducing your wealth due to high interest rates or fees, such as a high-interest personal loan.
Lead by example and show your teen that when used wisely, debt can work for you rather than against you. You may consider broaching the topic of borrowing to invest, and explain concepts like negative gearing and how there are many ways in which good debt can be profitable in the long run.
Modelling good money management
As a parent or caregiver, it’s your responsibility to lead by example when it comes to money management. Your teenagers should feel confident coming to you for financial guidance, so make sure you’re practising what you preach and more. Where adult budgets differ from those of teenagers is the set of financial responsibilities that comes along with owning assets.
Here are a few good money moves homeowners can make to set a good example for their children.
1. Centralise your finances
Centralising your finances allows you more control by giving you a simple overview of your income and expenses, and with Nano, centralising your finances has another perk. When you consolidate your finances into an offset sub-account, you’ll reduce your home loan repayments and cut out unnecessary account keeping fees, while having full access to your money with a Nano Visa debit card (1).
2. Read the fine print
From your utility bills to your home loan, it literally pays to read the fine print. While flashy home loan headline rates may seem attractive, the comparison rate is where you’ll get a better picture of what you’ll be paying in interest. Don’t fall for the oldest trick in the book—the cashback offer. Look out for avoidable fees like application or account fees charged by the big four banks. Nano values simplicity and transparency and is fee free, which means no application fees, no account fees, no usage fees and no transaction fees (2).
3. Regularly review your bills and home loan
From utility rates to home loan rates, ditch the loyalty tax and make sure you’re still getting a good deal. Reviewing your home loan regularly means you’ve got your finger on the pulse of the market and you’re able to seize opportunities to refinance. Found something better? It could be time to make the switch. Use Nano’s refinance calculator to see how much you stand to save by restructuring your loan.
Make a smart money move and refinance with Nano today.
- The Nano Card is issued by Hay Limited ABN 34 629 037 403 (Australian Financial Services Licence 515459). See terms and conditions.
- While Nano does not charge any fees, government charges still apply.