'Debt is not always a bad thing.' 3 golden rules of money to teach your kids from a young age.

We all wish we had learnt more about finance, saving, and investing when we were young. If we had, we could have avoided the foolish mistakes that have come back to haunt us later on.

Even though these days financial advice is available easily through a few taps of our fingers through TikTok on a smartphone, it’s often not practical or applicable to the average young Australian. Plus, by the time young adults become interested in managing their money they are often behind on basic knowledge which can lead to them making some common mistakes.

With access to all this information and misinformation, it is crucial to arm your kids with the financial rules required to navigate the minefield that is money, and make sure they have the best possible start once they leave school and start earning. 

In today’s volatile financial landscape, having a solid understanding of how to manage finances can help them live a stress free, stable adult life.

Watch: Five money lessons your parents told you that you should probably forget. Post continues below.

Here are our three golden rules of money to teach your kids from a young age.

Live below your means, and don't succumb to income creep.

No matter how much you earn, if you consistently spend more, that is a recipe for failure. This is compounded by another rarely talked about aspect. Your expenses increasing in line with your income.

For example, how many people have you seen get a pay rise, and all of a sudden they are wearing more expensive clothes, eating at nicer restaurants, and before they know it, that pay rise has disappeared into the abyss of excessive spending.

The most important lesson you can teach young adults is to always live below their means and continue to save money from every payslip. The best way to do this is twofold. Having a budget and setting financial goals. Without a budget, it is almost impossible to understand where your money is going and how much you can save out of every paycheck.

The best way to set a budget is to go through your last three months of bank statements and see where your money is really going, rather than focusing on what you think you are spending as you will always underestimate your incidental and conspicuous expenses.

Financial goals can be your best friend. Setting them up makes it much easier to save money and make conscious decisions about spending if you are actually saving for something in the future. Teaching your kids the importance of budgeting and setting financial goals is inherently crucial to financial success in the future.

Debt is not necessarily a bad thing but you need to think about it deeply.

One of the most commonly misunderstood tools in your financial arsenal is debt. From a young age, we are trained to see debt as a bad thing and while this is well intentioned; it isn't necessarily correct. When used correctly, debt can be a powerful tool and allows you to leverage opportunities that you otherwise may not have had access to.

Think about a mortgage. Without debt owning property, and all the benefits that come with it, it would be almost impossible to get your foot in the property market and reap the rewards that come along with it.

Debt begins to fall into the negative category when it is used to fund luxury purchases that you would be otherwise unable to afford. In this day and age, with debit cards and instant access to funds, there is no real reason for anyone under the age of 25 to have a credit card and you need to make sure your children are educated about the pitfalls of using credit cards and how quickly the interest rates and payments can catch up with you. 

It is important to teach and understand that debt can be a great financial instrument if used correctly, but you need to think very deeply before you use debt to fund anything. If the debt isn't going to increase your earning capacity or your net worth, then the purchase probably isn't worth going into debt for.

Listen to What The Finance, Mamamia's podcast all about money. Post continues below.

Talk about money with your kids. The best time to learn financial literacy is BEFORE you have money.

The days of money being a taboo subject are over. Having open and honest conversations about money with your kids is one of the best ways for them to learn financial literacy. Think about it, they aren't going to learn these things in school, so the only options are to either learn it from their friends (probably not great), from social media (good if you already understand it, but can be a minefield if you don't), or from you.

The best time to learn good money habits is before you start earning money so it is important to start having these conversations early and set good standards for your kids. Having conversations around what the stock market is, why it is important to think about investing (and risk vs reward), what different financial tools/instruments are, what interest rates mean on both the saving and spending side, why it is important to pay bills on time, what your credit file is and why it is important - all of these things are important to know before you leave school and start earning an income.

In summary, your kids will watch you and learn from your money habits from an early age, it is important to have open and honest conversations with them around budgeting, setting financial goals, debt and all around financial literacy, teaching them early will help them avoid mistakes when they enter the workforce and will set them on a great path for the future.

Sam Roby launched and co-founded Pure Capital in 2018, coming from a large corporate finance background that favoured transactions over relationships. Wanting to bring a relationship-focused approach to finance, Pure Capital was born. Their mission is to help borrowers navigate the minefield of different lending requirements to find the loan that is perfect for them, and since launching they've helped more than 2,000 clients, lending over $60 million in finance.

Feature Image: Getty