It's vitally important that children understand how to spend and save money for them to have a financially secure future – and they need to be given time to practise these skills before they are adults.
There are lots of steps you can take to teach your children to see the value of money and how to use it wisely. And in our currently credit crunched economy, these are vital life skills for all.
Here are some expert tips from Julie Hedge, contributor to Radio 4's Moneybox programme and author of The Pocket Money Plan: A Practical Guide to Teaching Your Children About Money. Julie trained as a lawyer before starting her own financial services company, and now lives with her young family near London.
1. Stop giving your child free stuff
There is a huge temptation in all parents to offer children their every desire on a plate. But giving into that temptation means they will never learn responsible money behaviour. Let's face it, in life they are very unlikely to get 'stuff' for free so it's not a great idea to bring them up thinking that all they have to do is ask in order to receive.
What's worse, if you do that, as time goes on they will cease to appreciate what they are given anyway, so generosity backfires to create a no-win situation.
2. Start giving pocket money instead
If you stop the free 'stuff', you will need to provide an alternative. It will perhaps come as no surprise that the alternative is pocket money. Pocket money gives your children responsibility and teaches them that money is finite.
3. Be consistent
Decide how much pocket money to give and pay your children the money on time every time. If you give your children money in cash, using a mixture of denominations, it is easier for them to separate money out to put some in savings, give to charity, or spend that day.
4. Link pocket money to earning
By rewarding good behaviour and tasks with pocket money, your child will understand the link between work and finance – this eureka moment is crucial for children to learn the value of money.
5. Encourage extra earning
As a general rule, the harder you work the richer you become – the earlier your children recognise this, the better. By offering extra chores and tasks for financial reward, you will encourage a good work ethic and teach your children that hard work pays off.
The Pocket Money Plan by Julie Hedge is available here from Amazon