There are lots of life lessons we strive to impart to our children, especially as single parents. Retirement planning might not be high on your priority list, but this is a great bonding opportunity for you and your child as they assist you in supporting the next step in their grandparent’s life. In fact, they might be able to observe you making plans for your own retirement village in Australia too. Despite it feeling like a lifetime away for your children, the habits they implement today can help them in the future and set them on the path to a future of freedom.
Today we are going to discuss the top tips for teaching your kids about retirement planning.
Understanding compounding interest
Understanding how compound interest works is found to be a great advantage for your children, as it installs the value of investing young and reaping the rewards. Compounding interest is the interest you earn on your initial deposit (called the principal) and the interest you earn on the interest already earned. Putting $5,000 into an investment at the age of 15 years old will result in a far larger investment at the age of 50 than it would if your child invested at 20 years old. Hard to believe that five years would incur such a large variance, but compounding interest is all about starting early.
Compound interest can be earned through a high-interest savings account, or it can be earned through investing in shares and term deposits. To get the full impact of compounding interest, the money has to stay put for a long time (the more decades the better), so don’t prompt your children to put in money that they may need in the immediate future.
Learn about superannuation
Superannuation is another form of compounding interest, and we are lucky as Australians to have access to such a great mandatory system. Superannuation, while automated for most Australians, is something we should have an active role in. Many people sign on to the super provider that is used by an employer, failing to use their existing superannuation at a new employer. Teaching children to manage their superannuation to ensure that all of their money is with the one provider is key. You can also empower your children to choose the superannuation provider that aligns with their values.
Property and lifestyle
Property is another consideration to make when planning for your retirement. Property can be both an asset class to invest in, but it is also going to be a security for your children when they retire and their opportunity to earn an income is diminished. Owning a property is by no means a recommended path for every individual, as investing money into other asset classes might be more viable. Regardless of whether you wish your children to own property or not, encourage your children to explore all avenues and outcomes.
Provide educational resources
You can only teach so much to your children before you give them the tools and resources to educate themselves. Ideally, you will provide a collection of resources that are easy to understand, information-rich and some relatable content. This can come in the form of some money management podcasts, money books and other blogs and websites. These resources are often delivered by hosts and authors that are of the same age as your growing children, and this can make the discussion much more poignant to your kids.
If you have a commute with your child or share books to read, put on money management podcasts on the drive or add a financial planning book to your list of books to read next. Leading by example and consuming this content is going to really set a standard in your home and allow your children to build their financial literacy.
Understand what retirement means
There are lots of discussions around retirement, but what does it actually mean? Retirement is not only deciding to stop working but there are also entitlements that individuals are eligible for at a certain age. Your children might not be aware that the retirement age is not a static number and it actually changes over the years to adjust to the average life expectancy and other figures. The government will also support the retired population through senior pensions and other entitlements, so show your children what this looks like and how this can be factored into their retirement planning. Try your best not to frame retirement in a negative light, as this could I still fear and misconceptions.
They say when it comes to parenting, you do not have to get everything right – just the big things. Financial education absolutely qualifies as one of those big things and will set them up for a comfortable retirement and greater peace of mind for you.