Why it’s absolutely essential to teach your kids about money
By reading this post you will gain strategies which will help you teach your kids about money. By implementing each point your kids will be more confident with cash, understand debt, saving and using a budget.
As today’s children grow up they have access to an almost infinite wealth of information, and they’re likely much more confident with technology than you are. The ease with which children can now communicate with the world can be both exciting and dangerous. It allows them to grow up faster than ever before.
Shameless materialism and increasingly child focussed advertising through television and social media are teaching children needs and wants that they once wouldn’t have had.
When your kids leave home, whether it be at age 18, 21 or older, they need to be able to manage their own finances. You bring them up to be savvy enough to avoid physical dangers and emotional harm as much as possible, why not better prepare them for financial problems?
Money is an important part of a child’s education and I wish it was taught more actively when I was at school.
My own parents took an active approach to teaching me about money, which I really value now.
Teaching Strategies by Age Group
Start teaching them early and it will pay off later!
Let’s begin with young children. When they’re just little, simply encouraging counting and times-tables is a good start. Learning to count, add and subtract will provide the basis for a child to be able to handle money.
Once you’re confident your child is able to handle small objects and be less likely to put them in their mouth, you can continue! This means they can handle coins.
I would be careful though and not introduce this step until you’re 100% confident of this stage in their development.
How to introduce your child to coins
Now is a good time to have supervised practice with coins. You can play games such as identifying each coin, counting and eventually calculating change. They can have their own money box and be given pocket money in small change. You can ask them if they have small change for a pound and see what you get back.
What is the best type of money box?
The best money boxes are see through! More like a money jar. This way your children can see their coins grow as they fill the jar and they’ll appreciate the value of them more when they take them out of the jar to spend.
The first trip through the til
Once your children are happy with using coins, why not take them shopping for sweets or treats and have them go through the till, with you holding their hand. They might be shy the first time but will quickly gain confidence. Have them check the change amount and see if they’re happy with it. You can show them how you pay for the weekly shop and pay it in cash! This will emphasize to them how much things cost when the handful of £20s get passed over.
I want to teach my children the concept of giving from an early age. I will let them choose the good cause for themselves, anything that means something to them. The act of thinking of a worthy charity is a worthwhile one as makes them consider issues ethically, which is something they might not have done before. Teach them to give away 10-20% of their pocket money/income from the beginning. In reality this will be a small amount of money (eg 20p) but it’s the fostering of good habits that counts.
You can set an example for them and match whatever they give to their charity (20% of a child’s weekly income may only be £1 so it’s an easy addition).
Have a second money box called a ‘charity box’ to keep all this change. At the end of the year it might add up to £40-50. For your child, seeing the impact of this relatively large amount of money will positively reinforce the giving habit. Try to show them what their money will be used for. For example if it’s a animal charity show them that the £50 is used for caring for poorly puppies or preventing animal cruelty.
School age kids
Older kids are professional money wasters
Have you ever seen a child spend the £10 they got for their birthday on utter tat, just for the sake of spending it? Not even a game or doll or piece of clothing or accessory they want, but utter tat? Like a dinosaur key-ring they’ll throw under their bed and find again about 3 years when you force them to do a clearout?
Should I give my children pocket money or an allowance?
There are a few things to decide when it comes to your children and any money they might receive. You can choose whether you want to give your kids an allowance or not. You can give it to them every week or reward them for doing tasks around the house. People take different views on this.
Some may feel they don’t want their kids to expect the money being given to them so they should do chores/tasks and be rewarded. Others may feel their kids should help around the house in order to contribute to the family and not only do it for money. Some families even impose fines for tasks not being done or bad behaviour (personally I don’t like this approach). It depends how you feel on these issues.
We’re planning a post on ‘Household Tasks and Pocket Money’ which will be coming soon. In here we talk about having a paid list of jobs the kids can do to ‘earn’ their pocket money. Using their new confidence with change they can use this money to add to a money box. Keep an eye out for this post coming in the next few weeks!
Train your own little accountant
Encourage them to keep a paper copy of how much they get and on which dates, as well as their spending. My friend did this with her little girl and she felt it heightened her daughter’s appreciation of the value of money. She didn’t want to spend the money she’d accounted for on items that weren’t important to her.
Introduce your kids to high interest saving!
If the kids get into the habit of saving why not add a couple of incentives, the same way a bank would add interest. For example if your child’s paper record says they’ve saved £10 then give them an additional £1 every few months. (You can tell them a 10% per quarter interest rate is pretty good!) Encouraging saving like this will again elevate their appreciation of the value of the cash they’ve accumulated.
Challenge them to work out how much they’ll have in a year, or three years. There are plenty compound interest calculators on google. Their modest amount of money could grow quite nicely.
For example, if your child gets £5 a week and puts it all into a money box with Mam or Dad giving them a 10% per year boost, in 3 years they’ll have accumulated over £830! The interest will have cost Mam or Dad an extra £117, maybe a worthy price to encourage your child’s saving?
If they do this then when they’re into their teens they’ll know the basics of how to make their money work for them!
Don’t be afraid to show your kids where the money comes from!
Maybe the reason that a lot of kids don’t appreciate money is that no-one tells or shows them how it is earned. These details are often thought to be for the eyes of adults only. Then we expect teenagers to become young adults and know exactly how to budget and save and avoid getting into debt. Something seems wrong with that to me.
Could you take your kids to work one day? Sit them down and explain exactly what you do for a living.
If you’re a teacher, tell them how many hours you work per week and how many hours you do extra work (such as marking or preparing lessons) that don’t get recognised. Show them your contract.
Should I show my kids my payslip?
Now for a more radical idea. You don’t need to do all these things but it provides an idea of a different approach. You could show them your payslip if you’re comfortable with doing so. This way you can point out the deductions like tax and national insurance, and pensions and student loan repayments. If you’re self employed, you can do the same with your accounts. If you’re unemployed and receiving benefit payments you can show your children each one and how they add up.
Doing this will impart an appreciation in your child of the work you do and how you provide for them. It will introduce the concept of long term saving (pensions) and loan repayments. These lessons can be built upon later.
When there’s none left show them. Show them your empty purse or wallet (or bank account!) If they’re asking for something and can afford to cover it with their own money, ask them if it’s something they want to put on their budget? Does this now mean they can’t buy the video game or larger toy they’ve been saving for.
Teen years are where it really counts!
Whether you’ve been encouraging your kids to be money savvy from a young age or not, teenage years are the time when it becomes especially important.
They now need to manage their own funds, for example birthday gifts and pocket money, with the strict rule that once it’s gone, it’s gone. If you encouraged it in their younger years, they’ll still be keeping their paper account of what they get in. Often older kids begin to slip with this as they spend more regularly.
Maybe it’s a bit far-fetched for a teenager to keep a paper or spreadsheet budget. However, simply keeping a record of their spends over £20 can be helpful for most. Any sort of budget or record of spending can improve their decision making when it comes to what is a shrewd purchase and what is a needless impulse buy. You could make keeping a budget the one requirement for handing out the pocket money every friday!
Show your older children how banking works
My uncle shows his son and daughter how he manages the family bills and bank accounts. He doesn’t necessarily show the account front page or current account balance but will show them the direct debit list and how me makes payments. He will show them the credit card bill and how it’s paid off. He hopes this will make the subjects of online banking and keeping on top of bills less mystifying as they reach their upper teens.
Get your child a bank account of their own. This allows them to manage their money, but they won’t (or shouldn’t) have access to credit. Once their balance hits zero there will be no more disposable income until they receive another round of pocket money or their own income. This will encourage saving as they can watch their balance grow, whether it be saving for the long term or for the next big purchase they’re desperate for. You could pay their allowance/pocket money into the bank account.
Challenge your children to manage their money!
Some parents take their teenager’s budgeting to the next level. Challenge them to look after ALL their expenses from one budget. Work out in your own head how much you spend on them a week for things like food, transport, mobile bills, toiletries and disposable income. Then give them this money one monday morning.
Yes … really!
You don’t need to go as far as charging them rent but everything else is fair game. They might not be used to being given such a sum of money and might be out of cash by the thursday. If this is the case they can live on bread and beans for the rest of the week and lose access to luxuries like free lifts to see their friends on the saturday. The following week they may take their budgeting efforts more seriously and think twice before buying unnecessary items. Hopefully they’ll still have money left over by the weekend too.
Make it clear your kids can talk to you about money
Whilst taking the stance of there being no extra money available once they’ve spent their lot, it is important to explicitly tell your child or teenager to come to you if they are actually in money trouble. Do they owe money to someone at school? Have they been involved in something they shouldn’t? Is someone stealing from them? The answers to these questions could be of paramount importance to them and to you as their parent. State out loud that if they’re in true need then you can help with money.
Encourage your kids to learn creative skills early
Try and encourage your teenager to learn a marketable and/or creative skill, which is perhaps different to what they might learn at school. Could they learn a skill that’s allied to what they want to do when they’re older?
For example, if they want to own their own business, could they learn graphic design skills like how to create posters, leaflets or even websites on programs like Adobe Photoshop or Illustrator?
There are countless cheap online courses available on this sort of thing. Have you ever checked out Udemy? It’s where I learned about web design and computer illustrations.
Take a look here. You could even sign up to a course yourself and show your teens that you’re learning something too!
You could incentivise their completion of it by offering them a reward. When your teenager comes to apply for a job (even if they’re intending to go to university or college) these skills will add to their CV.
Why not try….
- Learning Adobe Illustrator or Photoshop
- Learning to produce online videos.
- Learning computer programming
- Learning web design
- Business skills such as accounting or becoming adept at Microsoft Excel
- Learning practical skills such as DIY
They don’t have to get in the way of school or exams. These courses can be done slowly or in little bursts when you’re bored of homework.
It has taken me years to learn how to construct a website and design downloadable resources and templates. I’m only getting into creating videos now. I can only imagine where I’d be if I’d learned 10 years ago.
In their later teens if they’re struggling to find work or need something to do during school and university holidays, learning these skills can be very fruitful. Having certification in website design or Adobe Photoshop (or courses in accounting and finance) would be excellent additions to a CV when applying for a whole range of jobs.
What financial goals do 18 – 21 year olds have? Help them get there!
Once you have implemented some of the strategies we’ve talked about above, it’s not just money your kids will learn about. They’ll gain confidence, learn the importance of giving and charity, and when they’re older they’ll appreciate the effort you put in today.
These are the financial education goals I have for my future 18 – 21 year old.
I want them to
- Know how to budget
- Understand the meaning and dangers of credit, debt and the lack of an emergency fund
- Understand the power of saving and compound interest
- Learn a marketable and/or creative skill
- If going into employment, to manage their wages well
- If becoming a student, to manage their student finance well
- Start saving and investing (small amounts)
I hope the actions we’ve covered will help you help your children reach similar goals. Go and put them into action now! Your kids will be very intrigued!
If you enjoyed this post and found it beneficial, I’d be super grateful if you’d share it with your friends!
If you use any other techniques that I’ve not covered here, please let us know! Thanks!
A fantastic resource
Finally, there is a fantastic charity called Young Money whose website deals with all sorts of issues related to children and money management. They’ve teamed up with Martin Lewis from MoneySavingExpert to produce a ‘financial education textbook’ which is being distributed to every secondary school in the UK.
This guide covers topics such as saving, borrowing, debt, tax, risk and investments. I wish I’d read it 15 years ago!