Teaching kids to be smart spenders


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One of the money wisdoms my dad passed on to me when I was a kid was "Money is too hard to get to waste" and I now find myself telling this to my kids.

As teenagers they are bombarded by advertising and peer pressure. They need to carefully weigh up what they do with their money.

Money magazine reader Estelle Burey, from Queensland, sent in an invaluable list of questions and answers that she presented to her children when they went to university and lived away from home for the first time.

The questions are designed for kids to ask before they part with their money and can be modified for kids of younger ages.

Estelle wanted her kids to understand that there is a big difference between needs and wants.

"I made it up to prompt them to think about what they actually needed money for and to encourage them to think about what was necessary spending and what wasn't."

Needs are things such as nutrition, health, shelter and friendship, says Estelle. Wants are things that kids would like now "but nothing terribly tragic will happen if they don't get it just now", she explains.

Here are questions kids should ask when spending money:

1: Do I need to spend this money for my physical wellbeing? For example, is it for food or rent? If yes, then spend the money.

2: Has this spending been budgeted for and is it part of my budget for this week? If yes, then spend the money.

3: Is this item providing value for money? Is it cheap and nutritious food rather than expensive takeaway? Have you checked out the comparable prices and is it the best deal around? If yes, then spend the money.

4: Can this expenditure be deferred? Is it a want versus a need? If yes, then put off the spending until you can answer yes to questions 2 and 3.

5: What is the worst thing that could happen if you didn't buy this right now? Ask yourself "Will I die? Will I have no friends on this earth? Is there likely to be painful consequences if I defer this spending?"

If you answer "Nothing tragic will happen" then defer spending until you can answer yes to question 2 and 3.

If the answer is "The worst thing that can happen is really tragic" then spend. It all sounds quite sensible and well worth passing on to your kids.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.