Time to read: 5 minutes
While most parents are great at teaching their children manners, many are lost when it comes to teaching money management. And yet understanding the value of money is essential if they're to lead a full and varied life. So don’t shy away from it. Teach them about money and you’re not only developing their financial literacy. You’re also teaching them how to connect with their future selves.
Our research shows that financial behaviours begin to develop around 7 years old. Almost a quarter of parents report finding it difficult to talk to their children about money, with half saying that they didn’t know how to explain monetary concepts to their children.
One of the ways we can inspire future generations is through storytelling. That’s why we've partnered with the award-winning children’s author Emma Dodd. Together, we’ve created a book that aims to help young girls and boys to feel confident in their financial futures.
Written especially for children aged 5 to 7, 'Fairer Tales' turns traditional fairy-tales on their head. Instead of the female character waiting to be rescued by Prince Charming, she creates her own success through her own entrepreneurialism and financial acumen.
Setting a positive example for all children, it celebrates our potential to achieve our financial goals ourselves. And if you have a child that’s early-school age, our reading guide could be a great way to help you explore this theme together.
Lessons for every age
It doesn’t matter how old they are, it’s never too early or too late to start teaching them about money. And the best way to start? By talking about it.
Here are a few ideas for conversations you can have and valuable lessons you can teach them as they grow:
Under 11 years old
How money works
- Consider offering them an allowance that’s conditional on them completing some pre-agreed household chores.
- Let them spend their money (whether allowance, birthday or Christmas money) on whatever they want – the idea is to let them make their own mistakes so they can learn from them.
- Teach them how money works in the digital world. Children rarely see cash being exchanged these days so show them your balance on an app then go shopping or withdraw money and then show them your reduced balance.
The importance of saving
- Take them shopping and show them one lower priced and one higher priced toy. Explain that to buy the more expensive toy they will have to save their allowance.
- Guide them to set their own goals then, together, work out how many weeks it will take for them to save that amount and make a goal chart.
Model good attitudes and behaviours
- Remember that you’re influencing their financial behaviours with your own.
- Display and reinforce disciplined approaches to money matters, such as the practice of long-term thinking and delayed gratification.
Tween- and teenagers
Getting more from their money
- Help them to research and compare products before buying to get the best deal on a product and to make their money go further – this applies to savings accounts too.
- Explain the concept of interest and that by saving more it allows their savings to grow faster.
- If they already have an account, get them to research it online. Ask them to find out what their interest rate is and check it periodically.
How to budget
- Encourage them to think about ways they might start earning money – whether through taking on additional responsibilities at home or through part-time or weekend work
- Make sure they have at least 2 accounts: one for spending, and one for saving. Encourage them to save and praise them on how well they’re doing.
- Consider including them in your own household budget to give them an understanding of how your money is distributed.
Staying safe online
- Talk to them about the basics of online shopping safety eg check the URL of websites for HTTPS (the ‘S’ is for secure) before logging on or making any online payments.
- Explain why they should never give their passwords to anyone and how to spot a suspicious email or text that claims to be from their bank.
How to save for a mortgage
Explain that to get a deposit for a mortgage, the sooner they start saving, they quicker they can get their first house. Discuss the differences between saving vs investing.
- If they’d like to go on holiday with their mates, help them to book one. It can work in a similar way to a mortgage in that they’ll need to put down a deposit and later pay off the whole amount.
How credit works
- Consider lending your child the money for a big purchase (such as a car) and agree on a fair interest rate so they can pay off their debt over the following months.
- Once they have regular earnings, teach them about credit by suggesting they might get credit card with a low limit and pay it off in full every month. This can help them build the healthy credit score they’ll need to achieve future goals like buying their first car or first home.
- Remind them to budget for this expense and make them aware of the consequences of a bad credit rating if they miss a payment or pay less than the minimum amount.
- Encourage them to pay more than the minimum amount to reduce the amount of interest they’re charged as well as the time it will take them to repay.
- Explain that the responsible way to use a credit card is always to pay off the balance in full each month by Direct Debit.
Remember to foster independence too
It’s great to talk to your children about money, teach them how to manage their own and to take an interest in their financial goals. An equally important lesson is how to deal with financial setbacks.
When they come across a financial difficulty, resist the urge to bail them out. In times like these, their creative and critical thinking skills can come to the fore, helping them to build resilience and confidence.