Essential lessons to turn kids into smart spenders
12 ways to start early so children grow up to be cash savvy
WITH schools due to reopen on Monday for pupils who aren’t already in class, parents and grandparents should try a new form of home schooling – by teaching children an essential lesson in how to manage their money.
The pandemic has shown all of us the importance of saving for a rainy day. something the next generation need to learn, too.
Almost nine out of 10 young people aged between 16 and 24 say school did not teach them financial lessons.
And many face debt problems as a result, according to research from money-saving app Student Beans.
More than one in three have credit cards and overdrafts, owing almost £2000 on average, but don’t know what interest they are being charged.
It is never too young to start learning about money, so here are some lessons worth passing on.
Lead by example
Cathy Crewdson, partnerships manager at netvouchercodes.co.uk, says balance your household budget and live within your means as children will learn from how you handle money.
“If you have a flippant attitude to managing your finances, chances are they will too.
“When the shops reopen, take them with you. Show them how much – or how little – you get for your money.”
Teach them the value of money
When you are out shopping with your family, resist pester power.
This will save you money and pass on a valuable lesson, said Abigail Yearley at topcashback.co.uk. “Teach children the difference between wants and needs.”
Nicholas Agwuncha, co-founder of Money Medics, suggests teaching them about opportunity cost.
He said: “Tell them if you buy this toy, you will not be able to afford that video game. That way they will understand they can’t have both.”
Get them saving
Banks and building societies offer children’s savings accounts and most pay higher interest than adult accounts.
HSBC pays 2.5 per cent on balances between £10 and £3000 for children aged seven to 17, while TSB pays 2.5 per cent on up to £2500, from age 11 to 18.
Pete Mugleston, money expert at Online Money Advisor, believes the responsibility of running an account is a great life lesson. He said: “Monitoring their balance will make them feel grown-up.”
Even a money jar can pay off. Pete added: “Watching the coins build up is an exciting way to teach the concept of saving.”
Let them earn their keep
Children value their pocket money more if they have worked for it, Mugleston said.
“Start off simple, by rewarding them for doing household chores, and you can encourage teenagers to get a weekend job.”
Start small, think big
Martin Goycoolea, head of growth at maths learning platform Eedi, taught his nephews to do a simple budget in Excel to track where their pocket money went over a year.
Seeing how small numbers add up over time proved to be a real eye-opener. “They learned they could swap a short-term gain such as sweets for long-term satisfaction, say, saving up for a new guitar,” he said.
Warn about debt dangers
As well as lessons on saving, teach your children the danger of debt.
Lucy Cohen, co-founder of online accountancy service Mazuma, said adults shy away from this topic.
“Go into the nitty gritty of the consequences of buying things you cannot afford and becoming reliant on credit.”
Teach children how interest rolls up if you do not pay it off in time, until it races
out of control.
Put them in charge
Emma Hammond, financial planner at wealth management firm Charles Stanley, suggests putting kids in
charge of the family budget for a week or a month, under your supervision.
“Talk them through your income and regular costs, such as household bills, food and clothes, and extras such as dental appointments, school trips and sports clubs.”
At the end of the month, discuss their experiences. “How much money was left? What did they learn? Could they have spent less and how?”
Teach keeping score
When your children turn 18, discuss the importance of credit scores.
Hammond added: “If you have a poor credit score, lenders may charge higher interest rates, offer a smaller credit limit, or reject a credit card or mortgage application. Teach your children how to boost their score.”
Charity begins at home
Laura Laidlaw, head of customer savings at Standard Life, said you should teach the importance of giving.
“As a family you might have a favourite charity you support, alternatively, awareness days and events like Comic Relief or Sport Relief are a great time to discuss donating.
“Or they could sponsor a child in another country.”
Fraud warnings
Your children may be more tech savvy than you, but also more casual about sharing personal information on social media or email, Laidlaw said. “Warn them that their bank would never ask them for personal or account details by email or text.”
It’s different for girls
Vivi Friedgut, founder of student financial wellbeing company blackbullion.com, said women tend to earn less, save less and invest less, and have less money at retirement as a result.
“Teach girls to take responsibility for being financially independent. Talk about the opportunities money provides rather than the stuff it buys.”
Saving early will also give them a pot of cash if they take a career break later, say, to start a family, Friedgut added.
Invest time in the future
Educating children about pensions and investments won’t be easy, but should pay off in the longer run.
Emma-Lou Montgomery, associate director at Fidelity International, suggests setting up a junior ISA which will pay out at 18 can give them a healthy start.
“While cash seems safer, shares should give a higher return,” she said.