Paul Clitheroe, the leading financial adviser of the Australian Federal government, is advocating a program that would give children tax-free bank accounts. As reported by The Courier Mail, he also enjoins parents to teach children valuable financial lessons. Apparently, the family authority figures in Australia find it easier to talk to their kids about sex than money.
For Clitheroe, the children of today will be the bank account owners of tomorrow. While smart spending is a valuable lesson, it is not enough. Chances are these children will become high-spending consumers who do not know how to save once they grow up. In the same way, when they learn the value of money and how to manage it properly, they will be better equipped to face the financial problems as adults.
The lack of fiscal preparation can saddle these young children with bad money habits that they will carry over into young adulthood. As they reach their thirties, they could be young parents themselves. Plans to buy homes and other properties may make them realize that ignorance in their early years will prevent them from moving forward. Clitheroe’s gives as an example young people who incur student loans in college. Many leave it unattended as they climb their first ladders in employment.
Another bad practice is buying lots of items through their credit card without a reliable job or other means that could pay for it within a reasonable future. By the time they reach 35 years old, most would struggle with debts up to $20,000 or $30,000. This financial status would make it difficult for them to get a mortgage, invest in stocks and property, or create a sustainable pipeline of savings.
Clitheroe says that he believes parental reluctance to talk to their pre-adolescent children about credit ratings and debts stems from a desire to protect these young ones from the harsh realities of life. However, he argues that these kids are more resilient and resourceful than they are being given credit for.
Clitheroe also does not believe in postponing the inevitable. As they enter young adulthood, children will face unpleasant matters such as tax interest rates, credit interest hikes, and the failure to pay loans. Denying them this reality, and leaving them off to fend for themselves years later, would do more harm than good.
The proposal of a tax-free bank account for children could teach them lifelong financial lessons. Those lessons include saving, budgeting, delaying unnecessary purchases, and weighing expenses over long-term gains. It would also give these children a concrete measure of security that would sustain them during hard times.
Under Clitheroe’s program, parents would open a bank account for a child a few days after birth. Starting with $500, they would then deposit $50 every month. This goes on until the child grows and becomes an adult legally at the age of 18. No taxation on that bank account would ensure that he would have a starting capital of $16,370. Current laws can tax a child’s bank account up to 66 percent.
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