Rising interest rates have seen rents and mortgage repayments grow at unprecedented rates over the past year or so. And with inflation pushing the price of essential items higher, many families are doing it tough.
As families try to balance the household budget, some difficult decisions about spending may need to me made, such as pulling back on some activities or purchases, or even cutting them out all altogether.
While this can be challenging and put a lot of pressure on families, it’s also an opportunity to talk to your kids about money, and how and why you make the spending choices you do.
It’s important to reassure them from the outset though that no matter what else is happening, you’ll be there for them and that they are safe and loved. We don’t want kids to feel stressed or burdened with household finances.
Start with the basics of income versus expenses and explain that you can’t spend more than you earn, which means we can’t have everything we want.
That leads neatly into needs versus wants – the difference between the ‘must haves’ and the ‘nice to haves’. For example, you ‘need’ fruit and vegetables, but ‘want’ chips and chocolates.
They may have come across the term ‘inflation’ and wonder what it means, and what impacts it could have for them.
Inflation is the increase in the prices of the items we buy, including goods (things) and services (something someone else does for us). A key cause of inflation is supply falling below demand. For example, if there aren’t enough apples (supply) for everyone who wants one (demand), the price goes up.
The easiest way to look at it is that over time, the same amount of money will buy less things.
Including your kids in purchasing decisions can also help them better understand the value of money and impact inflation may have on family spending. It’s important that they understand how much things cost and the relative value of different goods and services.
They also need to appreciate opportunity cost – that buying one thing means you can’t then spend that money on something else. These choices are a key part of setting and sticking to a budget.
Interest rates, inflation and the rising cost of living are all important concepts that can help you explain why you’re not going away on holidays or that you’ve had to cut back on some extra-curricular activities.
It’s valuable for kids to know why tough decisions have to be taken and that it’s not their fault or to punish them in any way. Younger children don’t need to know as much, but older kids may pick up on tensions in the household and wonder what’s causing it.
While it may be a difficult conversation, take the chance to talk positively about money and why budgeting is important.
If you are having trouble meeting your financial obligations, remember you can speak to your bank or credit provider. It’s in their interest as much as yours to come up with a workable solution.
Read more about teaching your kids about money through our Spark Parent Portal.
