I’m Neil Edmond, co-founder and CEO of MoneyTime.
Our award winning financial literacy program is designed to equip children globally with the knowledge, skills and confidence they need to make good financial decisions as they go through life.
Right now I want to explain why teaching your children about money is important, now more than ever.
The mountain is steeper for our children
In case you were wondering, it has been harder for our generation to get ahead financially than it was for our parents; and it’s going to be even harder for our children. I’ve identified 5 reasons why this is and why it’s important that your children learn about earning, saving, borrowing, lending and investing in order to not just maintain the level of financial security they were brought up with, but to improve their financial situation.
1. Instant gratification
Our kids are growing up with the belief it is acceptable to live beyond one’s means. Their parents are and most of their friends are, especially when they leave school. They can access anything online with a few clicks. They pay using plastic, not cash so they have less of a sense of how much they’re spending and what is left. They very quickly have access to easy credit - credit cards, payday loans, afterpay. This leads to bad spending habits resulting in unnecessary student and personal debt.
2. Student Debt
Kids at university or TAFE have to pay tuition and accommodation fees but many of them are also spending their loan money on enhancing their lifestyle: nice clothes, sports equipment, concerts, travel and alcohol. Which is all very well until they have to pay it back.
Average HELP debt (Higher Education Loan Program) in Australia has increased every year since 2006.
In 2022 the average HELP debt was $23,280. The Sydney Morning Herald suggests that the time to repay student debt has risen from an average of 7.3 years in 2005 to 9.3 years in 2020.
9 years to pay off a student loan means many graduates are 28 years of age before they can even start saving for a deposit on a house or consider traveling, things many of us took for granted in our early twenties.
3. Personal Debt
It’s easier for our kids to spend money these days. They have greater access to the internet, cell phones, online shopping and debit cards. Combine this with incredibly sophisticated Consumer advertising and the desire for instant gratification and you get, you guessed it: debt.
Aus household debt as a proportion of disposable income is 210 percent (double that of 25 years ago)
Mortgage debt is a large chunk of this but personal debt is increasing at a similar rate.
The right debt can help people get ahead but the wrong debt can be a huge financial handbrake; it limits people’s options and costs them money they often can’t afford to lose.
4. Housing prices
House prices have risen reletessly over the last 30 years:
But wages and salaries aren't keeping pace. Over the last 10 years dwelling prices in Australia went up 58% & wages by only 26%.
House prices as a multiple of income are double that of 15 years ago.
Affordability has deteriorated more in Australia than in other comparable countries. The median multiple of house prices to income for major cities is 7.7 times in Australia compared to 4.8 times in the UK and 4.2 times in the US.
This is making it far harder for first home buyers to get into the market – it now takes people 8 years on average to save for a deposit in Sydney and nearly 7 years in Melbourne. While government grants and deposit schemes can help speed this up, the higher debt burden will take today’s borrowers far longer to enter the housing market than was the case a generation ago.
Not only do high house prices reduce the affordability of houses for first home buyers, high debt levels pose the risk of financial instability should an increase in interest rates or a dip in the economy make it harder to service loans.
On a macro level, the deterioration in affordability also results in rising wealth inequality, as boomers and Gen Xers benefit, and millennials and Gen Z miss out. Confining more people to renting will exacerbate wealth inequality and is likely to contribute to rising homelessness. All of which risk increasing social tensions and polarisation, as we are seeing in the United States.
5. Financial opportunities
Our children have more financial opportunities now than ever before. There are a bewildering array of banking products, job opportunities, investments and insurance schemes. There is crypto currency, NFTs, After Pay and.. pet insurance. There are so many options it can be intimidating for a young person, and adults, to even know where to start on their financial journey.
To summarise
It’s going to be harder for our kids to get ahead financially:
More spending opportunities
+ Instant gratification
+ Easy credit
= Personal debt
+ High cost of housing
+ Myriad of financial options
= Bigger financial challenge
It’s not all doom and gloom though. Becoming financially literate at an early age can make a difference. If you’d like to know more about teaching children personal finance, check us out at www.moneytimekids.com
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