How to teach children about money (in a cash-free world)

We grew up with coins and notes, but for our kids money is online, virtual – and confusing. Anna Maxted explains how to help

‘My Isa is separate. I won’t touch that until I buy a house’

Keen for her daughter Coco to grow up financially astute, health and wellness coach Emily Dawson encouraged an entrepreneurial spirit from a tender age. There was a greeting cards enterprise and a prickly plants episode. And then Coco broke it to her mother that she didn’t want to work for herself.

“What I’ve learned from my mum is to be quite cautious and not to spend money here and there,” says Coco. “And I’ve learned to save. But I’ve also learned that I like working in a team and would like a job.”

Few parents are as proactive as Dawson. In fact, many of us are clueless about how to approach money issues with our children, and now most transactions are digital, we worry too that it’s an abstract concept, fraught with risk, which they’ll struggle to grasp.

“Money isn’t as real as it used to be in our day, when

Ruby Thresher, 17, Bristol

you’d go to the newsagent with £1 and buy a comic and a pack of sweets,” says Simonne Gnessen, founder of Wise Monkey Financial Coaching. “Now, it’s on a card and it’s whatever is in the account.” Experts stress that a cashless society isn’t necessarily harder to navigate. Helen Driver, founder of moneyready.org,

an online platform to educate children financially (ages seven to 18), says, “For young people, it’s the norm. My 13-yearold looks at me blankly if I give him a £5 note. It has to be on a pocket money app for him to be able to spend.”

And Sarah Porretta, strategy and insights director at Money and Pensions Service, says, “Our research shows that children can have developed a savings habit by the age of seven.” And if they haven’t? “It’s never too late to start teaching children about money.” And yet there are so many scams and devious marketing tricks, it is a rare child – or adult – who hasn’t been caught out.

My poll on social media found one 12-year-old spent £300 on Fifa coins on his Xbox, another blew £300 on The Sims, and a nine-year-old spent more than £1,000 on Clash of Clans in a weekend. Several months ago, big spender Mabel, three, from Cornwall, bought a tractor for £14,000 on eBay’s “Buy-ItNow” option on her grandmother’s iPad.

Mabel’s mother, Rebecca Tidy, 33, says, “Mum rang my ex – ‘Mabel’s bought a tractor – I think. It says on the screen.’ She couldn’t work out how to cancel it.” So she kept it. (She doesn’t live on a farm, but in a rural village.) “The tractor was delivered from Wales and spent a long time on the driveway until it leaked, it’s now gone to a family friend with a farmyard.”

A horrifying, if hilarious cautionary tale, although surely a toddler pressing buttons is wildly different to a tween

‘Language such as “get more coins” doesn’t trigger in a child’s mind “I’m spending money”’

‘Mum told me when we couldn’t afford things. I’ve learned to save. ’ Coco Dawson, 16, Margate

burning cash while gaming. But they have a common denominator, in that purchases are instant and often slyly unclear. Vicki Shotbolt, CEO and founder of digital experts Parent Zone, and executive board member of the UK Council for Child Internet Safety, says, “What games manufacturers and all sorts of online retailers have done is make the process as frictionless as possible. You click a button and that’s it. Sometimes it’s not even obvious it’s a shopping button.”

Games can be very manipulative. Manufacturers apply psychological techniques from gambling to trick children into spending. The parents of an eight-year-old who became obsessive about playing one particular game wrote to Parent Zone, “The game became her world and spending was the only way to a higher status.” They felt that she had become addicted, having been sucked into a financially incentivised world that parents do not understand.

Transactions are often obtuse. Shotbolt says, “Language such as ‘get more coins’ or ‘add to your collection’ doesn’t automatically trigger in a child’s mind ‘I’m spending money’.” Manufacturers also know children aren’t thinking rationally. “They’re caught up in the moment. So if something pings up – ‘get this to reach the next level more quickly!’ – they’re going to click it. You’re at peak desire and going to make the purchase. It’s so cynical.”

Elif Toker-Turnalar’s son – then nine – spent £100, then £400, on Fifa, several years ago, through her Microsoft account. “I had a credit card on there to pay for Microsoft support. That card became little coins on a screen. My child thought it would be fantastic to get some of those coins to finish a game. He didn’t understand what he’d done.”

Only the first purchase was refunded. “Everything’s down to the individual and your responsibility, and that’s hard,” says Toker-Turnalar, from London. True, but it doesn’t negate the fact you’ve been set up. “You cry with frustration, because you’ve been taken for an absolute mug,” she says. “I felt it was so wrong. It seems absurd. You can’t even go to an ATM and take that money out. Yet it can happen in a game.”

My own 14-year-old recently bought a “skin” accidentally on Fortnite – thanks to the one-click method (“I was just looking!”). But look, I tell my husband – you can set parental controls on consoles to prevent unauthorised spending. But regardless, understanding how their games are monetised, explaining to your child and ensuring they know what’s allowed, plus, knowing their maturity level – is important.

It’s exhausting. Yet, says Driver, there’s good technology, too – “apps and digital banks try to protect and put in checks and balances”. And, ultimately, she says, how they fare “comes down to children’s attitudes and behaviours towards money. It’s why financial education is key.” Gnessen says, “We are hard-wired for instant gratification, so we must teach kids how to break through the emotional pull of wanting something now.”

We can empower them. “The main driver of a child’s financial capability is their parents,” says Porretta. But, adds Driver, “it’s not necessarily them sitting you down talking about interest rates. It’s more what you pick up in their behaviour and attitudes.”

If we’re coy, says Porretta, “we give our children a shaky start in terms of money.” She suggests beginning their financial education from three – “a combination of giving pocket money regularly, also talking about money and vocalising decisions you’re making, such as ‘We can’t afford that because it’s £10 – but this is £5.’ Most people aren’t sharing that. They’re doing it in their heads and children are oblivious.”

It’s a mistake. There were reasons that Dawson, 47 – mother of Coco, now 16 – hoped her daughter might become a cactus magnate. She says, “I wasn’t taught about money growing up. I have learned the hard way.” So, as Coco grew older, Dawson was honest. She’d say, “We actually can’t afford that. And I know all your friends can. I know that’s hard.” Yet she always focused on being grateful for all they did have.

Strike a balance between involving children in money choices, but not fostering fear, guilt or shame. “Instill the concept of making choices,” says Gnessen, and don’t confuse them. “You might say, ‘Be cautious about spending’, but if they see Amazon parcels arriving daily, and you with your head in your hands in front of a credit-card bill, there’s an incongruence.”

Dawson’s candour paid off. She says, “Coco is really good with money. She’s saving it and thinking forward.” Now in her last year of school, Coco has earned money from dog walking, babysitting, and now, assisting a stylist friend. “She’s seen me work really hard, and also fail terribly. She’s watched and learned. I’m proud of her. I’ve given her that education and I feel grateful,” says Dawson. We can do the same for our children.

MARKETING TRICKS FROM V-BUCKS TO THREE-FOR-TWO

We need to understand marketing tricks to explain them and encourage children not to succumb. “Buy three for the price of two! It’s getting you to double what you intended to spend. Think of it like a game, and don’t let the product marketing team win,” Gnessen says.

“Fifty per cent off the full price doesn’t necessarily mean anything. Some outlets increase prices, only to reduce them and claim a 50 per cent sale. If it goes on a credit card, by the time you’ve paid it off, you’ve likely spent twice the tag price.”

KLARNA (AND OTHER BUY NOW, PAY LATER CARDS)

Driver says, “Klarna is the antithesis of delayed gratification and saving up. It’s ‘have it now’, portrayed as if it doesn’t cost anything. That’s true if it’s paid back in three instalments over three months.” But if you don’t have money to cover those instalments, it’s a debt. “They’re looking to regulate those providers,” says Driver, “but it’s on retailers such as H&M, Top Shop and Asos. I fear that when my 16-year-old daughter is clothes shopping online these cards may plant a seed, even though she can’t access them until she’s 18”.

PUTTING CHILDREN IN CHARGE OF THE PURSE-STRINGS (WITHIN REASON)

A secure way of helping children engage and build good habits is via a prepaid card and app with parental controls, such as gohenry (gohenry.com). The parent has an account, with a linked account for each child. The children get debit cards – but can only spend what’s on the card. Parents can set up automatic weekly allowances, and list chores to complete to earn extra. They can choose where the card can be used, set spending limits, and receive real-time notifications about what their child is spending.

It’s worked for Heath David Concannon, 10, from Worcestershire, who admits, “Before I got my gohenry card I was rubbish at saving.” However, being able to see his balance grow via the app has helped him understand its value. He no longer spends on “silly things” and earns extra by “cleaning and mopping”.

Driver says, “Some apps allow you to move money into pots, so children learn about money management. Some might be for saving, some for charity, some for spending.” Similarly, digital banks for adults (such as Monzo, Starling, Atom Bank and Revolut) help you to manage money consciously, says Gnessen – and a 16-year-old can open an account.

DON’T GAMBLE WITH YOUR EMOTIONS

Can our children distinguish between investing and gambling? Driver says, “Investing isn’t like gambling. When you’re gambling, it’s the gambler against the house. It’s a win or lose situation. When you’re investing, the company wants to do well. Your interests are aligned.” I tell Driver that last year, many bored 18-year-olds I know played online poker and some struggled to stop, despite losing money.

It’s complex, of course. But Driver suggests discussing “emotional spending”. Intellectually, they understand the risk, “but sometimes we spend to paper over the cracks – to make ourselves feel better.” To help teens limit that, you might say, “Think of this as a hobby. Budget for it actively and put money aside. Once it’s gone, there’s no more – just as you wouldn’t go to the cinema 25 times a day.”

WHEN YOU BORROW FROM YOUR FUTURE SELF

Children’s behaviour around borrowing will be underpinned by their attitude towards money. But it’s helpful to understand the differences between types of borrowing. No need to get bogged down in APRs and interest rates, though if that appeals, Gnessen recommends whatsthecost.com debt snowball calculator.

Driver suggests conveying the idea that “you’re borrowing from your future self. You get the hit now – the bike or console – but there’s a difference between the price you pay today, and the cost you pay ultimately. In very simple terms, it will cost you more. Understand that if you borrow £100 to pay for it today, you’re going to pay £150 back.”

And yet, borrowing isn’t a dirty word, she says. “A student loan is very, very different from a credit card. If you’re buying a house or starting a business, you’ll probably borrow. There’s good debt and bad debt. Good debt is when you borrow to create something that will be worth more in the future. Bad is borrowing to play online poker or because you want the latest thing some celebrity has endorsed on Instagram.”