Some parents worry that educating their kids about money will impose unnecessary pressure on them. However, if you want your children to be able to look after their finances in adult life, there really is no better time to begin teaching them than when they’re young and responsibility-free.
Why is it important to teach kids about money?
The most powerful influence on how your children manage their money when they’ve grown up is how you managed yours.
Children take the lead from their caregivers, constructing their worldview from the grown-ups they spend every day with. If you spend their childhood complaining and overtly fretting about your financial situation, they are likely to internalise the mindset that money is an inherently worrying concept and carry this into adulthood.
According to a study conducted in 2013 by the University of Cambridge, children can form opinions and habits around money from as early as seven years of age, and they are far more observant when mum or dad is making a transaction than their parents might give them credit for.
According to the researchers,
Children develop financial and economic understanding when they have personal economic experiences. […] Although young children under the age of seven years are unlikely to develop sophisticated understanding or conceptions about the processes underpinning such practices, they do develop a limited understanding relating to why they are done and how they are effective.
So what activities and methods can you use to teach your kids about money? Read on for 7 great ways to teach kids about money.
1. Use a clear container to store their cash savings
Piggy banks are fun and traditional, but they don’t give children the visual understanding of where their money is actually being stored and saved when they pop that 20p inside.
Instead use a receptacle made of plastic or glass, through which they can excitedly watch their mound of coins growing. Savings apps (see point 6) can also gamify saving and help children see how their money grows.
2. Pay for chores completed and not just pocket money
The idea of giving your kids pocket money every week is nice, but what does it teach them about money?
It’s far more educational to instead pay them commission based on chores such as cleaning their room, helping with dinner or taking out the rubbish. This instils the concept that money is earned, not given.
3. Let them make mistakes
A lot of families fondly remember the time one of the kids spent 10p on the wrong packet of sweets and spent the rest of the weekend tearfully lamenting their own silliness.
But to err is human, so let your children make their own spending decisions and, where possible, don’t wade in to stop them. Advise them, sure, talk things through beforehand so they develop an understanding of weighing up alternative options, but ultimately allow them to be the master of their own purse strings. They’ll thank you for it one day.
4. Avoid impulse buys
Children can be deceptively adept at getting their own way when they see a shiny new toy whilst out shopping and want it for their own. They know how to capitalise on the impulse buy—especially when it doesn’t involve their money.
But rather than giving in or shutting the matter down with a cold hard no, how about educating them in the economic concept of opportunity cost? Let them know that the toy can be theirs—but it will be paid for using the money they earn (see point 2).
Remind them of the implications of this, namely that over the next week or month they won’t receive any commission—but that they’ll still have to do their chores. This can prove an immense logical conundrum for an eight-year-old, but the experience can be profoundly formative.
Alternatively, let your child know that the toy will still be there next week when you’re both back in town, and that they need to think about it for a few days. This allows them the opportunity to think more clearly about their financial priorities. (And in the meantime, they’ll probably see an ad on TV for a brand-new ‘must-have’, anyway!)
5. Lead by example
Your child’s brain is a sponge. Kids are just waiting to soak up every iota of information around them, and they love to learn new things, especially when it makes them feel grown-up.
Actively encourage them to observe your finance-related activities. Take them through what you’re doing step by step. And the next time you’re writing and depositing a cheque, paying a cashier or using an ATM, see if your child can remember the process on their own and dictate it back to you.
6. Open a savings account
When your child is old enough, sit them down and teach them that not all money can be seen and touched.
Introduce them visually to online banking and show them when you open their brand-new bank account—preferably with some money already in it, by way of demonstration.
Let them know how interest works and explain how their money will grow over time, enabling them to buy bigger and better things when they’re older, such as a car, a house—or even that massive red water gun they saw next door’s kid playing with last week.
There are lots of savings accounts that now have great finance apps for kids. Interactive apps can help teach children about how bank accounts work, how to save online, and offer prepaid bank cards that allow children to spend the money you give them with appropriate limits and supervision.
7. Teach them about charity
Educating your children in emotional as well as financial literacy will help them develop into empathetic and kind adults.
Showing them the impact that money can have on the life of someone other than them will expand their worldview and comprehension of the inherent financial inequalities some members of society suffer. By shaping their perspective of others’ existences, you can build their civility, courtesy and sympathy.
If you as a family support a local charity, religious group or even a vulnerable neighbour, see if your child might occasionally prefer to donate their £2 earned from helping you wash the car to a worthy cause rather than spending it on sweets or a magazine.
It’s never too early to start teaching your kids about money
Comparison resources offer you free impartial advice to help you compare children’s current accounts. As soon as your child becomes familiar with money, savings and transactions, they will begin to develop a greater understanding of the world around them and adopt responsibility more seamlessly when they grow up.
Educating your children about money will help them mature into responsible, well-rounded people, ready to face the reality of having to live off their own means when they one day fly the nest.