27/11/2013 15:23 GMT | Updated 22/05/2015 10:12 BST

Explaining Spending And Saving Money To Children

Piggy bankPA

In the current financial climate, how can you talk honestly to children about money without making them financially anxious? And how can we ensure youngsters don't - in the words of Oscar Wilde - end up knowing the price of everything but the value of nothing?

My friend Louisa, a mum of one, recently felt compelled to talk to her son about money. "We were having lunch in Caffe Nero at the time and he hadn't eaten his sandwich crusts so I explained that we were going to have to start tightening our belts," she says.

"As I finished my lecture I said: 'So in future, I'll make you take those crusts home for your next meal'. A few days later we were out for lunch and he asked me to wrap the crusts up and take them home!"

Louisa now chats with her son about money on a regular basis. "I explain that we're in the midst of reduced circumstances and that consequently we can't eat out as much as we use to, or buy stuff on demand," she says. "Fortunately he gets it, as the sandwich crusts situation shows. But I can't help feeling bad about having to restrict the fun of spending money, yet at the same time I want him to understand the value of it."

Another friend, Natalie, works hard to help her son grasp the concept of saving money. "We cover things like whether he should spend his money on a Kinder egg or put the money in his savings fund, towards a new toy he's got his eye on. We even had a savings chart to help him track his money."

Natalie thinks giving her son some freedom with his money helps him grasp how finances work. "We went to the school fair recently and I gave him £5 and said he could spend it on whatever he wanted. He chose a box of popcorn, three ice creams, several little toys, a Dalek costume and a go on the bouncy castle. I would have preferred him not to have three ice creams, but I didn't tell him what he could spend his money on."

However, Natalie isn't a fan of making kids earn their pocket money. "I think there are certain things, like tidying up, that children should do anyway. Pocket money is there for learning about finances and the affordability of things, so that when we go to the shops and he asks for something, and I say I have no money he 'gets' it."

Mum and finance expert Sue Hayward agrees that children should fulfill their fair share of household tasks without expecting payment, but says pocket money is a brilliant way to teach children the value of money. "My daughter's pocket money is hers to save, spend or even fritter on fake nails or whatever she fancies buying with it," Sue says. "I grit my teeth and let her have responsibility for her own pocket money but obviously money given to her for Christmas or her birthday is different - I wouldn't allow her to fritter that away."

Sue recommends finding creative ways around children's seemingly endless fiscal requests. "My daughter would pick up a box of posh cakes in the supermarket and rather than saying no I'd explain that Sainsbury's own version were half the price, so we'd go and seek them out together."

"Younger children in particular sometimes take things very literally - saying you're not going to buy something because you can't afford it might get some children worrying about whether there's any money in the bank at all," she says.

"As a turn of phrase saying you've run out of money or don't have any cash can cause children anxiety. Better to explain that you need to spend the money in your bank account on other important things, like paying the mortgage or your rent. And don't be afraid of explaining that even though you can technically afford something, you're choosing not to buy it because you already have something similar at home, or are saving your money up for things like holidays."

But if money's too tight to mention and your children are likely to suffer the consequences of cutting back, how should you broach the subject?

"Just be honest with your child. Explain that food costs more at the moment and that as a result lots of families need to spend less for a while," Sue says. "Encourage kids to help seek out bargains, deals and discounts, and if they've got unwanted toys or clothes that they could sell on Ebay you can even help them learn about those fun ways of making money of their own."

How do you teach your children about money and at what age?

Parenting on a Budget