Parents are often brilliant at teaching their children about the importance of eating their greens and how to cross the road safely. But what about personal finance? It sounds very serious, but, all of this does begin with pocket money, piggy banks and playing shops with the cash register.
The Times Money Mentor explains that ‘The sooner we teach them the basics, the easier it will be, and you can start with as little as a few pounds in pocket money’. Experts reveal that getting your children used to talking about money from an early age can help them avoid financial issues in future. So what to do, the youth finance 101 guide.
A starter for 10:
According to a University of Cambridge report, by 7 years old, we develop basic financial behaviours. Before you panic and think your kids are already behind, they’ve probably addressed the basics: counting and exchange.
This starts with simply counting objects, but should grow to include counting coins and notes. Show kids the different kinds of coins and bills, allowing them to recognise the differences, group them, and then count that specific set.
One of the hardest lessons to learn at this age is that something must be given up to make a purchase. Money can only be spent once. To teach this, give a child a pound (maybe £2 coin in this day and age!!) to spend in the shops and focus on choosing an item they really want. The child must hand over that coin to purchase the item and experience the exchange of goods.
Growing up Savvy
Unfortunately, your mother was right and money does not grow on trees. It is earned, and for kids at this age, it should be earned with chores. Rather than an allowance, reward work with personal funds. This teaches the ultimate lesson in finance: it takes work to earn money. It can also be as simple as rewarding good behaviour too (Pavlov’s dog style..), good grades at school will promote a good work ethic. The only money they don’t really have to work for is the Tooth Fairy money!
Learning to save isn’t just an essential money habit. “Saving teaches discipline and delayed gratification,” Renick, the Sammy Rabbit author says. “Saving teaches goal-setting and planning. Saving stresses being prepared. Saving builds security and independence.”
So, It’s time for a piggy bank or maybe a clear mason-style jar, instead. A clear mason jar allows a child to see the money grow over time. It helps reinforce the benefits of saving. It’s also essential to introduce children to the benefits of banks. Take them to the bank with you to deposit money, explaining the benefits of saving money there versus at home.
It’s also important to explain why you save: short-term needs, long-term goals and establishing an emergency fund.
Positively reinforce their savings actions with messages of encouragement. Examples include:
- Saving is a great habit.
- I love to save.
- It feels good to save money and build my future.
In their younger years, you’ll inevitably see them saving up for a toy (which will sadly no longer be circled in the Argos catalogue), but as they grow into adults, it will eventually be higher involvement purchases such as cars, holidays and houses!
Set up shop
One for the younger kids; Help your child play shop by displaying toys or food for sale and making price labels. Give them a purse full of coins or ask them to design banknotes in different colours for different denominations.
Hopefully, this will keep them quiet for a while. Well, until you’re needed to take turns as a customer or shopkeeper, exchanging goods for money and counting out change.
As they get a little older, they can still play, but perhaps it’ll be you offering a tuck shop with a daily allowance so they don’t eat you out of house and home. (Tip, make the healthy snacks cheaper and it’s a win-win for parenting!). This will help to teach them budgeting too from a young age.
Step it up in their teen years and get them involved in meal planning and cooking too with this simple budgeting activity: set them a budget for a fun family meal. Ask them to plan the menu, write a shopping list and work out what they can afford to buy. Base the prices at whichever supermarket you use (utilise the supermarket website even if you don’t order online) to give them a realistic idea of what things cost.
Point out how to check the price per kilogram or per item, to identify cheaper options. The next challenge is to book a delivery slot.
Similarly, on a rainy day, don’t be afraid to get the Monopoly board out! Teach them the value of investing in houses and hotels and investing in property in the long run.
Bank of Mum and Dad and beyond
Marching your child down to a building society to open their own account might be difficult when they’re small. But in the interim, why not set up a Bank of Mum and Dad. Paying interest if your kids save instead of spend. Add coins or tokens to their money box or add virtual interest via a pocket money app.
As they get a little older, you’ll increase the allowance and open up a Junior bank account and ISA. Check out the best ones according to Which? Here. Similarly, when they need their own bank card, GoHenry is a great solution: The kids’ prepaid debit card & financial education app.
Be a good role model!
As with most things, your children are sponges – they soak up everything around them – and that includes your financial habits (good or bad). For example, if you complain about having to spend too much on certain things and then take your kids on a shopping spree, you’re sending mixed messages.
Instead, make sure you model the behaviours around money that you want your children to adopt.
If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices. In short, practice what you preach. And preach with consistency. Educating your children about personal finance is a process that can take time. But if you put in the effort and continuously communicate a clear message about money, you will instil good habits that will serve your children well. And maybe, the Bank of Mum & Dad won’t be as exhausted when they start thinking about buying a house (but we can’t promise anything!).
So next time you cheat it Monopoly, remember, you’re instilling bad financial habits into your children.. But if you’re an adult, and still need a hand with your mortgage and setting up your nest for your little ones, we’ve got your back!
p.s. we’re in no way affiliated with Monopoly or GoHenry…