Australians have a mounting debt problem. A problem to the tune of $45 billion.
New research from the Australian Securities and Investments Commission (ASIC) shows that one in six consumers are struggling with credit card debt.
According to ASIC, there were more than 14 million open credit card accounts as of June 2017, with outstanding balances of $45 billion, approximately $31.7 billion of which was incurring interest charges.
Much has been written recently about the ‘frightening’ levels of financial illiteracy in Australians, as well as lending practices that make it easy for the unwary to incur debt they have little hope of repaying, as ASIC has also pointed out.
Australia’s collective ability to manage their money well and even save some of it, it would appear, is a complex and deep-seated challenge – one potential solution for which lies in educating youngsters about the importance of saving and forming good money habits from an early age.
Fortunately, Baby Boomers, a generation known for its financial know-how, are in a prime position – in conjunction with their children – to help teach the newest generations valuable lessons about money and how to manage it well.
One of the most helpful ways to do this, says Rob Lockhart, a financial educator at Westpac, is to start discussing money early with your grandchildren.
“Be open with them about the decisions you’re making about how you spend your money,” he says. “We have to involve our children when we’re budgeting for things – for example, saving up our money for our next holiday, or car, or even saving money to buy Christmas presents.”
Teaching your grandchildren about setting savings goals is also one of the most important things you can do to set them up for financial success down the track, according to Lockhart.
“I think that for kids it’s about having the conversation,” he says of his own offspring. “I’ll say, ‘what is it you want? What’s something you want to save up for?’. From an adult’s perspective, one of the hardest things with children is letting them set their own goal. You might not agree with it. You might think it’s terribly frivolous, but it has to be their goal. It cannot be yours. If it’s yours, they’re not going to be passionate about their goal.”
Once the child has set the goal and determined a date by which they think they can achieve it, you can then help them monitor their progress. This can be a fun bonding exercise with your grandchild, and your excitement about their goal can help to keep them both excited and motivated to achieve it.
“It’s just acknowledgement,” Lockhart explains. “It doesn’t have to be a huge conversation or anything like that. But one of the important things about anybody reaching their goals is their ability to share it with other people. In sharing with other people, it actually makes them stick to their goal.”
One of the ways that Westpac is helping parents and grandparents teach their kids under 18 about setting money goals is through the bank’s Bump Savings account.
One of the other popular features of the Bump Account is the ability to set savings goals. This function lets the child set up and manage personalised savings goals – they can also have multiple savings goals within the one account.
“The child can actually log in and have a look at how much they’ve got in their account, and for children under 12 years of age the parent’s got full control over how they transact on it,” Lockhart says. “They can earn interest on the account.”
“With the Westpac Bump account, you can see [visually] how long they’ve progressed along to their goal, so they’ve got an idea of ‘hey, I’m getting somewhere, and I can see that end target’,” Lockhart says.
While it’s critical to teach kids about saving, they also need to learn about spending money and the choices this involves.
“The most important thing is that once they get to that goal, make it an occasion to go out and buy it,” Lockhart advises. “You didn’t save just to save, you saved to go and get something you wanted, and that’s what saving is all about. Teaching them that and the joy of it being something they wanted is a great way to start instilling that into them.”
Another helpful tip is to ensure the child’s savings account balance doesn’t ever reach zero. Lockhart cautions: “If it goes back to zero, there’s a good chance they’re not going to continue to save,” he says. “It’s going to break that savings habit.
“The key thing is, I think, is talking to your grandchildren about how you do your own finances. If you don’t include them, they’ll think everything’s just magic. They’ll never understand.”
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