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I don’t want to brag, but when it comes to teaching my daughter safety and good manners, I like to think that I’ve got it well and truly under control.
Yet when it comes to educating our kids about money, few parents know where to start. Myself included. In fact, according to research from Yorkshire Building Society, just a quarter of us regularly talk to our children about money,
But parents are the biggest influence on their children’s financial habits, yet we don’t talk about money. It seems like a massive taboo somehow. What’s more, unlike other parts of parenthood, there is’t any playground chatter about the topic, so we simply revert to doing what we know and pass our habits, both good and bad, down to our kids.
So how do you overcome teach your children to be financially savvy?
Here are seven ways you can get started:
1 Talk about money openly so that it is not a scary thing
Children’s first foray onto personal finance begins with pocket money or deciding what to spend birthday money on. That may seem insignificant but research from the government-backed Money Advice Service found that adult money habits are set by the age of seven. SEVEN! So, before children are even hit junior school, it is already determined whether they will be ‘savvy spenders’ or ‘splashing-the-cash types’.
The challenge is making these financial lessons age-appropriate. Talking about compound interest with a four-year-old is not going to do much, but making money a regular family discussion is a good place to start.
An easy way to do this is during the weekly food shop. Use this as an opportunity to talk about planning, saving and finding the best value. Let your children hold the list and tick off each item or if they’re older, give them a few items from the list to find on their own at the best price.
When my daughter was in preschool, I used to print off a picture-list of what we needed so that she could tick off as we went around the supermarket. Not only did it get her involved in the grocery shopping, but it kept her suitably distracted so she didn’t hassle me for sugary treats the entire time. I like to call that a win/win.
2 Don’t Say “We Can’t Afford It”
Though experts warn against telling your children that you can’t afford it, it’s easy to use this default response when your child begs you for the latest toy for an hour while you are trying to do the food shop. But saying this sends the message that you’re not in control of your finances, which can be scary for kids – and create future money anxieties.
A more appropriate way is to say – “We choose not to spend our money like that.”
3 Pay your kids pocket money
Forking out a weekly allowance can be a divisive topic among parents. Some argue that financial rewards are a good way to get kids to help around the house. While others say that helping with chores is simply a part of being a family, and should not have to be paid for. However, another way to look at it is that providing your kids with pocket money is one of the best ways for them to learn how to handle money on their own – so long as it is used appropriately.
But when is a good age to start? Experts suggest that starting with a weekly amount when your child enters infant school and then spacing out the timing to fortnightly or monthly by the time they are finishing secondary school is most appropriate.
Decreasing the frequency of payments will be a great lesson that will set them up well for adulthood and a monthly salary.
How much should you be paying out, you ask? It’s a personal choice, but figures from Childwise show that kids are now getting £11.20 in pocket money per week on average – up from £9.70 a year ago – a jolly lot more than I got in my day, that’s for sure. But what I found even more interesting is that it seems that the gender pay gap starts even earlier than we thought. According to the research, boys receive £12.60 per week on average, while girls receive just £9.80. Yikes.
4 Pay by cash
One of the best ways for children to see money in action is when you make transactions with cash – whether it is at the shops or through giving pocket money.
It’s only once they have grasped ‘real’ money can you move on to the more difficult concept of virtual or digital money.
5 Encourage them to save birthday and pocket money
It is crucial that you show your children that money can play a variety of roles in their daily living whether it is spending today or saving for tomorrow.
Providing pocket money in lower denominations makes it easier to allocate a proportion of your child’s income to these different goals. By encouraging saving, children experience the positive emotions – particularly satisfaction – connected with saving money.
For younger kids, labelled jars work to separate the money – one for saving, one for spending, and one for sharing with those who are in need. Anytime they make money by doing chores or receiving birthday money, encourage your child to divide the cash equally among their three jars. It’s not a huge act, but it does start the process at a young age that it’s okay to spend some of your money, if you’re giving back to others and saving as well.
Once they’re older, you can set them up with bank accounts that mirror the split.
6 Explain the difference between needs and wants
It is only natural that kids want the latest toys and gadgets, but making them understand the difference between needs, wants and wishes will help them make sensible spending decisions from a very young age.
One way to do this is to put it into a context that your child can understand – for instance, explain how many weeks of their pocket money it would cost to pay for the item.
7 Let them learn from their mistakes
As hard as it is to stand back and let your child control their own cash, there is value in doing just that. If things go wrong, resist the urge to sort it out, dealing with the consequences of their actions will force your child to learn to make smarter financial decisions.