Whether they’ve found a part-time job at the local cafe or are picking up shifts at the family business, your child entering the workforce is a major milestone. Naturally, they’re going to learn plenty of important lessons about money along the way, but there are still things you can do to help nudge them in the right direction. Here are just a few.
Teaching them good money habits for the here and now
A first job means a regular paycheck — and all the temptations to spend that come with it.
As your child navigates their newfound financial freedom, it’s important they learn how to manage their money responsibly. This can take many forms, including:
- Keeping track of purchases and savings goals with a budgeting app
- Breaking down spending into needs and wants — and exercising judgement when it comes to the latter
- Learning to differentiate between good debt and bad debt
- Comparing options before deciding on a financial product (such as a savings account) or provider
- Using Buy Now, Pay Later services sparingly or not at all
- Making sure their employer is paying them what they’re owed (including super)
- Pausing before a potentially frivolous purchase and considering the time and effort that went into earning that money.
Foster an appreciation for investing
Beyond the basics of financial literacy, now might also be a great time to talk to your child about investing and how it might help them achieve their long-term financial goals. This might involve learning about different asset classes, the risk associated with each, the importance of diversification, and how the power of compound interest can be harnessed to help grow their wealth.
Try to explain that when you hold the bulk of your savings in cash, there is a risk its value will erode over time due to inflation. By investing, your child can potentially counteract this by generating returns that outpace the rise in living costs over the long-term.
You might even opt to give them a lump sum to help kick-start their journey. Just be mindful that specific income tax rules will apply if your child is still a minor. Currently, Australians under the age of 18 can only earn up to $416 of investment income before tax rates as high as 66% kick in.
Contributing to their super
Many adults understand the importance of superannuation, but it might take some effort to convince your child of its value. After all, they won’t have access to theirs until they meet a condition of release, and that usually means reaching age 60 and retiring. But getting serious about super early on can make a world of difference.
One of the most valuable assets young people possess is time, and when coupled with the effects of compound interest, it becomes a powerful tool for accumulating wealth. What’s more, the tax on super contributions made by employers are also generally lower than most income tax rates, and you could receive a deduction on any after-tax contributions you make to your account so long as a Notice of Intent form is submitted to your super fund in time.
To encourage your child to be more proactive, think about contributing some of your own money into their super, and getting them in the habit of monitoring how it performs over the long-run. Just keep in mind that as a parent you’re generally not able to claim a tax deduction or offset for co-contributions of this kind.
Whether you want your child to be as financially savvy as you are or you’d like to prevent them from making the same mistakes you did when you were younger, helping them to cultivate good money habits now that they’re working can go a long way.
