8 MONEY LESSONS TO TEACH KIDS Give your children a head-start with their financial futures
It’s never too soon to start a conversation about saving and spending, says Joanne Finney
One of my four-year-old’s favourite games is emptying out his piggy bank and counting his coins. He might only have amassed £6.44 so far, but he’s so proud of his savings. However, according to new research, he is likely to be part of the last generation of children to even own a moneybox. Nearly one in three parents now pay pocket money digitally*, straight into their children’s bank accounts. As we become increasingly cashless – something that’s been accelerated by the events of the last year, with more shop closures, online buying and an increase in contactless payments – a growing number of children will never have handled actual cash.
So, how do you learn about money without coins to spend at the corner shop? ‘New banking apps aimed at kids include some fantastic tools and games that make learning about money visual and fun, without the need for stockpiling spare change,’ says Salman Haqqi from money.co.uk. ‘As our love affair with online shopping continues to intensify and smartphone shopping is now the second most popular way to buy, it makes sense that parents would move more of their expenditures online, including their children’s pocket money.’
Although money management is now on the school curriculum, parents are still their children’s main financial role models. And that’s a scary thought if you don’t consider yourself to be ‘good’ with money. But the more you talk to your kids about your own experiences – good and bad – the better equipped they’ll be. ‘We know that children develop money habits and attitudes between the ages of three and seven,’ says Evelyn Omoike from the Money and Pensions Service. ‘We also know that children who are talked to about, and have responsibility for, their own finance decisions do better at money management later on in life.’
More than a third of parents have used home-schooling during lockdown as an opportunity to teach their kids about finances, according to research by Halifax, and nine out of 10 say they actively encourage their children to save. Not sure how to pitch it to your children? Here’s what the experts suggest at each age…
1
Introduce the concept of money
● Aim to talk to your children about money from around the age of three: keep it simple and engaging by playing games that involve coins (real or pretend!), such as shops. The sooner you start, the more they’ll be used to the idea of money as they get older.
● Be aware of how you talk about money. ‘Our first money memories can influence our relationship with money for life. Be mindful that your children will be picking up messages around money right from the start,’ explains Kelly Hearn, ex-investment banker and psychotherapist with Examined Life.
2
Teach the art of saving
● Children as young as four or five can understand that money has a value, that people buy things with it and that those things cost different amounts.
● Give them a piggy bank and encourage them to save up for things they want to buy. You could also create a savings jar for them, with a picture of what they’re saving for on the front.
3
Address wants versus needs
● From the age of six, you can start introducing the idea that when money is gone, it’s gone.
● Help your young child understand the difference between ‘wants’ and ‘needs’.
● ‘When your children have money to spend, help them see the choices they can make, for example, one item for £2 or four items for
50p each,’ says Maya Prabhu, head of wealth advisory at JP Morgan Private Bank.
4
Explore ways to buy
● Eight- to nine-year-olds can understand that there are ways of paying for things without using coins. Let them see you use your card to withdraw money or pay for your shopping.
● Regular pocket money is really important at this age, as is creating saving goals around it. Not sure how much to give? Use money.co.uk’s pocket-money calculator.
● ‘For children under 10, create a policy of “pause before purchase” – a cool-off period eliminating impulse purchases,’ says Hearn. ‘This creates time for discussions about spending, aligned with needs and values.’
5
Be open and honest
● Talk to 10- to 11-year-olds about family money and how you decide what to spend. Talk to them, too, about bills, debts if you have them, and how much you earn. Be open and it will give them the confidence to talk openly about money, too.
● ‘Encourage their participation in making decisions relating to money in a fun way. For instance, in planning holidays,’ says Prabhu.
6
Let them take control
● From their early teens, kids can handle more responsibility and make more choices about their money.
● Prepaid cards, pocket-money apps and current accounts are all great ways to learn about spending and saving. Try Nimbl (£2.49 a month), a prepaid card and app; parents can pay in money and see what their child is spending and where. Parents manage the gohenry (£2.99 a month) prepaid card through an app and decide whether it can be used in shops, online or at cash machines; they can also set children tasks to complete, with financial rewards. If you’re not ready to give your child a card, give Roostermoney a go. It’s a free tracker app, which you use to keep tabs on what pocket money they’ve accrued (a prepaid card is also available for £24.99 a year).
7
Allow them to learn from mistakes
● Older teens can manage larger sums of money and make more spending and saving choices, even having set amounts to use on holiday, for example.
● Take time to talk to them about gambling, fraud and online safety.
● Explain how borrowing works and that it can cost more to pay back. ‘If they want to borrow money from you, let them know the rules – and follow through,’ says Prabhu.
8
Set them free financially
● Prepare school-leavers for independence: they need to know how to pay bills, have their own bank account and be using it regularly.
● They need to understand about starting to develop a credit history and why it’s important.
● Give them a basic lesson in how compound interest works and how they can earn interest on their interest. It takes a bit of getting your head around, but it’s one of the most important money lessons they’ll learn!
● ‘Encourage them to research the costs of the things they might need, such as car insurance. Help them develop budgeting skills to prepare them to manage finances,’ says Prabhu.
● ‘Some 18-year-olds will be able to access savings accounts set up by the government for children born between 1 September 2002 and 2 January 2011. The first set of these Child Trust Funds have matured and can be cashed in or transferred to an adult ISA,’ says Omoike.