Children learn through copying what the people around them do, particularly their parents. That includes attitudes to money - how they spend, budget and save. Children start forming lifelong financial habits from as young as seven years old, according to research by the Money Advice Service (1).
So, by teaching your child the important life skill of how to manage money from a young age, you’re helping them develop into money savvy adults, equipped with self-control and sensible budgeting experience.
Parents might worry that exposing children to money is too adult a pressure, but the reverse is true. Dr Elizabeth Kilbey, a child psychologist and mother of three, says: “Having tough conversations with your children is part and parcel of being a parent and money can be a subject many find particularly hard to cover, especially if it is an area which they struggle with themselves. One of the key reasons for many parents is that they feel children shouldn’t be burdened with adult responsibilities, like worries about money. But it can in fact be very empowering to give your children skills and confidence with money, so that they don’t have to face money worries in the future.” (2)
Here are eight ways you can help your children become savvy about money:
1. Introduce children to money from an early age. As soon as children start learning to count, show them the different coins and their values. Teach them to look after money and keep it somewhere safe.
2. Subtly integrate money and decision-making around purchases into everyday life. You don’t need to burden children with family finances, but it’s important to show them how money is used in exchange for things. Let your children hand over money at the till themselves and count the change received, learning the first important lesson that more coins doesn’t mean more money. Show them how you write a list of what you need to buy and how you decide between items based on price and value for money; that you’re not impulse buying but have a plan and a budget. Explain that you can’t just ‘use your card’ or ‘get money out of the wall’ but that your bank card is linked to your bank account and a finite amount of money.
3. Give your children regular pocket money, so they take an active role in using money and making decisions about saving and spending it. Be organised so that money is paid consistently, so children can start developing budgeting skills. Let children make mistakes about how they spend their pocket money. They need to learn through experience, and that includes making the mistake of buying a toy that turns out to be disappointing. Only through trial and error will they realise the very important concept - once it’s gone, it’s gone.
4. Talk to your children about saving money - not just spending immediately. Tap into young children’s enthusiasm for colouring and drawing by helping them create a savings chart with a picture of the toy or item they are saving up for. Work out how many weeks it will take for them to save up for their toy, and draw a box for each week. They can shade it or put a sticker in each week to track their progress and keep them motivated. Every week they can put the pocket money into a personal savings jar with a picture of the toy on the side. This way you’re teaching them the importance of delayed gratification and that ‘good things come to those who wait’ (3).
5. Talk to your children about how you earn money by working for it. By early adolescence when children have grasped the concept of a wage, link pocket money to chores around the home, so they learn the equation of taking time and effort for monetary reward. They will also be less likely to fritter away money they’ve worked for.
6. Don’t forget virtual money. We are moving towards a cashless society, so it’s important to teach digital savvy children the concept of using virtual money and that it’s still real - when you don’t have it, you can’t spend it. Show them how you keep track of money coming in and going out on a phone app or online banking.
7. Help your children open their own savings account. Having their own account with regular statements will help them feel confident about the idea of banking - and saving. But let them take money out, so they feel empowered to make their own decisions.
8. Give teenagers a monthly allowance and increased financial responsibility. In a short time, they will be leaving home for university or work so they need to have hands-on experience of budgeting and decision-making, like buying clothes or paying for their monthly phone contract. Show them how their money will go further when they plan ahead, for example, by comparing prices online and avoiding impulse buys. Encourage them to keep a tally of incoming and outgoing amounts, so they learn to prioritise spending and how to stretch their money by forgoing ‘little extras’ like coffees. Above all, don’t be tempted to top up money if they run out. They need to learn that when it’s gone, it’s gone (4).
From understanding the different coins as young children to budgeting for clothes as teenagers, your guidance can help form positive financial habits and a healthy relationship to money that will help your children have happier futures.
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(1) Money Advice Service
(2) Money Advice Service
(3) Decisions, Decisions. Instant Gratification, Aviva
(4) 20 Ways To Help Your Kids Be Good With Money, Aviva