As a parent you should teach your child financial lessons. If kids develop good financial skills from an early age they’ll be ready for the financial challenges of adulthood.
1. Take advantage of everyday activities
Finances are a part of everyday life, no matter what you’re doing, so there are always opportunities for introducing money talk with your kids.
- At the supermarket – talk about price comparison such as the differences between shops’ own brand versus recognised labels, value for money when comparing regular items with bulk buys, and even inflation by selecting a few of their favourite things to monitor every week.
- At the cashpoint – explain to younger children that money isn’t free but earned.
- At home – when bills land on the doormat, take the opportunity to discuss with older children and teens how things like gas, electricity and water are commodities that have to be paid for.
2. Incentives and Work
Many parents debate the appropriate age to give children pocket money and, really, there is no right or wrong age. What is important, however, is whether they just get it or if they have to ‘earn’ it. As adults we work for our money and it’s never too early to teach children the same concept. Younger children do really well with simple incentives like keeping their bedroom tidy or putting away toys once they’ve finished playing. Older children could ‘earn’ their pocket money by helping with household chores or mowing the lawn.
3. Save, Budget, Spend
One of the most effective ways to teach your children how to manage their money is with the Save, Budget, Spend philosophy. Whether it’s pocket money, wages or gifts at birthdays and Christmas, encourage children to save half, budget a quarter for pricier things they might want and leave the other quarter to spend as they want.
The ‘saved’ money should go straight into a bank account. ‘Budget’ money should be used for things they want to buy that are more expensive than the little treats they can afford with their ‘spend’ money. For example, if a young child sees a toy that he really wants, help him to work out how long it will take him until he has enough money through his ‘budget’. Explain also that it will take less time if he budgets some of his ‘spend’ money but don’t make it necessary. Let him make the choice and reap the rewards if he does.
Older children will often want to buy things that are not part of day to day necessities, like clothing, music and games, so they should be encouraged to budget for these things. As children get older they often find it harder to save but if they see that larger goals, like driving lessons and cars, are on the horizon, giving them a saving target helps to curb their instinct to spend.
4. Open a Bank Account
If you’re encouraging children and teens to save then it makes sense to open a bank account in their name. Depending on the type of account, children under the age of 16 may need a parent signature. Most High Street banks offer accounts tailored to children, often with added incentives to encourage saving. (Who remembers NatWest’s piggy banks?)
Having an account, especially for older children, means they can learn about things like interest rates and bank charges while they’re young so that they understand them when they have their own independent accounts as adults.
5. Share your experiences
Children learn by example in all aspects of life and that includes money. Although most parents these days are better than previous generations at talking finances with their kids, some things can be difficult, like past financial mistakes or buys that we regretted. Instead of hiding your spending habits here are some simple things you can share with them;
- Let your children see you budgeting for special items.
- If you use coupons or voucher codes, show them what a difference they can make to your final bill.
- Try to curb your own spending to avoid impulse buys so your children won’t see that as the ‘norm’.