Watch them grow
Money lessons...the Janes family, (from left) Claudia, 9, Emily, 11, mum Megan and Liam, 7. Photo: Simon Alekna
When your young child points to an automatic teller machine (ATM) and says ''that's how you get your money'', you know it is time for some explanations.
The image may be one of an endless flow of money coming from a hole in the wall whenever it is needed.
The best, and by far the easiest, way to teach children how to save money is by opening a savings account
Children learn by example and unless someone tells them what is behind the ATM, how will they understand that people have to work for their money?
Where and when to begin teaching is a difficult question but the chief executive of St George Bank, Greg Bartlett, suggests first thinking about your own attitude to money, which the child may be observing.
Then there are issues around how a child should receive money, Bartlett says. Will it be pocket money? What do they have to do to get that money?
Whether you teach through talking, games or activities may depend on the child.
The managing director of financial services provider KeyInvest, Ian Campbell, says parents looking for the best ways to teach their children about money can often refer back to their own childhood.
''The prudent savings strategies of past generations, particularly those who grew up in tougher economic times, can prove to be valuable lessons for today's more impatient spenders,'' he says.
''Grandparents or great grandparents who approached major life events and purchases with a proactive savings plan are great role models. However, along the savings path, it's still very important to celebrate discretionary spending. A child will respond very well to making their own purchase from the money they have saved and that's a great way to ingrain the benefits of saving.''
Lessons to learn
One of the worst examples you can give children is borrowing from their piggy bank.
''If parents are being seen by their children as irresponsible savers, where they are constantly running out of money and can't budget effectively, this can have a negative impact on their kids,'' says the chief executive of comparison website RateCity.com.au, Damian Smith. ''Teaching children about effective saving is really only done in practice not in theory.''
Smith was referring to a Bankwest survey showing one in three parents admitted to borrowing money from their children's money boxes to pay for items from a loaf of bread to an airconditioner.
Most parents (not all) paid back their children's savings, according to the report.
The report also finds that almost half of the children surveyed who receive pocket money don't save it. And of those who do, only 64 per cent use a bank account.
Smith says children are missing out on interest because their parents have bad savings habits, which are being passed on to their children.
''The best, and by far the easiest, way to teach children how to save money is by opening a savings account,'' Smith says.
According to RateCity, the kids' savings account paying the best interest rate is Westpac's Kids Reward Saver at 6.2 per cent, followed by Suncorp's Kids Savings Account at 5.5 per cent, the Victoria Teachers Credit Union's First Saver at 4.9 per cent, ANZ's Progress Saver for Kids at 4.76 per cent and the Commonwealth Bank's Youthsaver Account at 4.51 per cent.
St George's Bartlett says the most important lessons about money are similar regardless of the child's age - what differs is how you communicate that message. So for the younger ones, parents might teach the first lesson, about the value of money, in terms of material goods and that when you go shopping things cost money.
Other lessons are: how money is earned by working; saving for short-term purchases by putting money in a jar and seeing it grow; spending money is fine but once it is spent it is gone; people borrow money but it must be paid back; and investing money helps it to grow, such as by earning interest.
The way these are demonstrated will vary depending on the child's age.
In the virtual world of Coinland, avatar Caroline Shine, aka Emily Janes, 11, has earned $28 in virtual coins.
Under the guidance of Mr Save-a-lot, Caroline Shine looked for jobs in the Daily Coin newspaper, such as "Splash the Rabbit" or "Pizza Mayhem".
Her reward in virtual coins was for keeping the rabbits at bay or making pizzas. Then it was quickly off to the bank to make a deposit.
Already a good saver in real life, Emily learnt through the Commonwealth Bank's interactive Coinland website (coinland.com.au) what happens when you put your money in the bank.
"I know that each time you put your money in the bank you get more interest," Emily says.
Pitched at primary school children aged five to 10 years, the idea is to create a personalised avatar that represents them in the game, alongside their guide Platy, who shows them how their actions impact their savings goals.
The bank's saving super heroes, the Dollarmites, interact with players to bring money management to life. They also meet Mr Save-a-lot, who teaches children about money, while Gobbler — Platy's nemesis — entices them to spend.
Caroline Shine is yet to decide whether she will spend her virtual dollars on a new mobile phone, at the fun park or on a movie.
In real life, Emily has already saved $300 of her own money to buy a Nintendo DSi game console and is now saving for her own laptop to "play games and Coinland".
She would rather have her own computer than share the family computer with her two younger siblings, Claudia, 9, and Liam, 7, who are just starting to understand the benefits of saving.
"Emily has always saved all her pocket and birthday money and the other two like to spend it as soon as they get it," says mother Megan, also a good saver.
"With the younger two, they are just starting to realise that if you save your money you can buy something bigger."
The general manager of consumer marketing for Coinland, Mark Murray, says the game has been developed to build the financial literacy skills of children, creating a virtual world where they can have fun while building knowledge about money.
He says the underlying lessons are the importance of earning money, saving and setting savings goals. Children learn through challenges and games.
Discuss money tips on the Essential Kids Forums.