Verity Johnson: How to raise rich kids - even when you're not
OPINION: We know how bad Kiwis are at saving. We're often told we're a financially illiterate country and only 23 percent of us have a regular saving scheme. How many of us check our bank statement and become convinced we're a victim of credit card fraud - only to remember that we did a drunken online Kmart shop last weekend.
But the good news is that you can teach your kids to be financial superstars, even if you have the financial acumen of a smurf. So here are a few tips on how to help your kids grow up to be rich.
1. How to save 20k for their 18th birthday
Most people want to save for their kids future. But all we're ever told is to open a bank account and stick a bit of cash in whenever you can.
Blogger Ryan Johnson runs the Money For Young Kiwis blog, which is designed to help Kiwis be more financially literate. He recommends saving for your kids from birth. But instead of using a bank account you put the money in an index fund.
"If you invested $50 a month for 18 years, and got a return of 7 percent a year after fees and taxes, you'd have roughly $21,000 at the end of 18 years," Johnson says.
You'd need a bit to start off. Index funds such as InvestNow require only a $250 initial deposit. But after that you only need to save $12.50, or about three coffees a week, and at 18 your kid has a $20k nest egg.
Johnson particularly recommends using index funds such as InvestNow or Smartshares for long term child investment.
"The great thing about investing for such long time frame is that you have plenty of time for stock market returns to even out," he says.
2. Check what their school does for money tips
While your kids are in school, banks will actually teach them to handle money. ASB's Get Wise program has facilitators in Hamilton, Auckland, Wellington and Christchurch alongside a national roadshow. They travel around teaching kids up to Year 8 everything from how to use a credit card to how to run a small business. Find out whether your school offer their workshops, and if they don't then send them a bossy, school-wide email.
Charitable group SavY runs similar programs in schools however it goes right up to Year 13 and school leavers. They cover topics like debt, moving out, flatting and your Kiwisaver. They're also run by young people who are teaching other young people. And again, hassle your school to book them.
3. Teach your kids to have a "F Off Fund"
The F**k Off Fund is based on the idea that your independence is tied to money. The fund is there on the assumption you will have crises points in your life when you need to cut and run. You need to leave your house, your job, your boyfriend... whatever. With the F**k Off Fund, you can do just that.
The fund is three to six months worth of your expenses that allow you to live while you find a new life. When you have a new job and more money again, you can start saving for a new one.
Teaching your kids to have a fund teaches them that having money makes you independent. But not only that, it warns them that life is going to be messy and predictable and painful. So when a crisis arrives wielding a chainsaw, they already have a getaway plan.
So how do they save three months of salary? Glad you asked...
4. Teach your kids how much to actually save
Most teens hit adulthood having precisely zero knowledge of what a budget is. You can correct this. Well, Google can. They have hundreds of free pre-made budget templates online. So when your kids start working full time, it's time to have The Big Talk - aka, how to budget like a boss.
Get them to work out what they earn weekly, what they spend weekly, and therefore what they can save weekly. Then calculate how much three months of weekly expenses is, and how long you'll need to save to get the Fund.
For example, Sarah earns $691 a week which is the average for a 20- to 24-year-old Kiwi. She spends $180 a week on rent, $25 a week on bills, $15 on petrol, $82 on her student loan (12 percent of your weekly income), $80 on eating out, $80 on entertainment, $25 on coffee and $25 on the gym. That adds up to a weekly expense count of $614. So after expenses she has $76 of savings per week. Three months of her expenses is $2456, so she needs to save $76 for 35 weeks to have a three-month F**k Off Fund.
Also, tell them how much you spend weekly on food, power bills and miscellaneous crap. Teens often have no idea how much things actually cost. Is it reasonable to spend $15 on a pot of coconut yoghurt? Only in Ponsonby.
5. Know the BIG MISTAKES you can make with money
Now you've armed them to make money, how are they going to save money? Well, maybe by avoiding some of the huge money traps that want to suck your account drier than that email from that Nigerian prince with your inheritance.
Firstly, avoid credit cards. Their limits are terrifying. Banks will offer your newly working child everything from $500 to $10,000. Suddenly they have $8000 of debt and your teen is considering selling a kidney.
Just don't get them a credit card. They can buy everything online with a Visa Debit card until they've mastered budgeting.
Secondly, tell them not to always buy lunch at work. Yeah it's easy and they might be hungover. But buying lunch three times a week is a $50 hole in the bank account. So teach your kids to cook and prepare them for adulthood.
Thirdly, warn them about flatting. Flatting is incredible but flatmates can suck you dry. They may not pay rent. They may move out at 4am and take 'their' fridge with them. They may break, burn and pillage your house during an Ecstasy binge. Then you're picking up the bill as they dance off into the paraffin glow. So one, flat wisely. Two, do not let them be on the lease because if they are... they are the one the debt collectors come after.
Verity Johnson is a Newshub columnist and feature writer.