Your kids might think pocket money is great, but if you really want those coins to count then you need to teach them about the importance of money. Financial literacy for kids is about more than piggy banks. Money lessons now can lead to better financial stability in the future, which is more important than ever.
Money gets us things we want and more of it can be helpful – that much comes easily. But sometimes, we don’t always appreciate how to handle what we have. An effective financial education for kids can teach them the importance of money, meaning each pound can go the distance. Giving your kids the tools to manage their cash can develop money habits that will benefit them far into the future.
With the right money lessons, you can help your child learn the importance of spending, saving, and budgeting. In the short term, this can be a fun exercise for them to reach goals and buy things they enjoy. In the long term, it can help them achieve the lifestyle they want, avoid debt, and become financially secure in a difficult economy. Best of all, you can start early, and keep things fun.
If you’re unsure where to start the conversation, or how to make it enjoyable, don’t worry, we’ve covered it below.
Understanding the importance of money
Understanding the importance of money is an essential step in financial education for kids. By learning about money’s importance and value, they can get a sense of what it’s worth. This knowledge allows them to make informed decisions and solve financial problems. While giving money freely is the path of least resistance, it may not be great for teaching kids about finances. Still, withholding and dictating may not be the best solution either. Instead, think about money activities you could use to get your child involved, and to reward them.
To really help your children grasp the importance of money, there are a few things you can do.
Involve them in financial decisions
This doesn’t mean deciding on a mortgage, but you could build scenarios based around their wants. Perhaps, you could even get their opinions on different deals in a supermarket. Maybe a test could be to see how much they can save on the weekly shop and give them the difference as a bonus.
Teach them the power of saving and budgeting
You could teach your child how to save for something they want, while also budgeting for treats they enjoy in the short term. This rewards them and teaches them the value of saving, as well as the effort that goes into it.
Talk about money
It’s not a taboo subject – having conversations about smart decision-making can impart the knowledge your children need. Being able to have and involve your children in discussions can be a great way to teach your kids about money.
Give them pocket money
To give your kids a good money lesson, it’s best they have some of their own. But don’t give it freely. You can turn every opportunity into a chance to learn. Let them earn based on the chores they do, with different jobs being worth different amounts. Decide a reward level and bonus based on effort and enthusiasm.
Put it to the test
Set a budget and allow your child to dictate the spend for the day. Work with them to create a spending plan and encourage them to make the right decisions. Allowing your child to make cash payments can give them a literal sense of how far money goes.
Teach them about borrowing
Once your children reach their teenage years, there’s no turning back and you can probably expect more requests for money. After all, their sense of independence will grow, and their interests might change. This could be a great time to teach them about borrowing, especially for those bigger purchases.
Explain the concept of interest and set terms for them to ‘pay back’ within a certain time frame to help teach responsibility. Remember, late payments usually carry penalties. Explain how something like a Norton loan might work, so they can relate to real-world examples.
Give them a sense of your spending
It’s easy to spend when you don’t have a sense of what you’re spending, and that goes double with online transactions. While you don’t have to display every family expenditure, showing the kids the cost of outgoings compared to income can be a great way to give children a sense of what things cost. Without context, £50 may not sound like a lot.
Set a starting sum and show how expenses can shrink your funds. This can give a great sense (and appreciation) of what things cost – from food to family outings, and everything in between.
Open a bank account
There comes a time when you need to upgrade the piggy bank – and many kids will be eager to do so. Opening a bank account is a step towards adulthood and independence. Depending on their age, you can get child-friendly bank accounts, but pre-paid cards exist as a viable alternative.
Starting early can give your child a sense of responsibility and develop their habits as they manage their own money. Not only that, but bank accounts are a way to give them a sense of freedom – while all you’re really doing is upgrading the piggy bank or money pot.
Developing financial literacy for kids
Financial literacy for kids will look different, depending on their age. While you may be tempted to wait until later in life, you can start introducing your child to money early on.
When should you first start teaching children about money?
From the moment your child starts to talk, ask questions, and understand concepts you can introduce them to money. In theory, children as young as four or five could learn simple aspects such as the value of different coins or how to use money.
You can also impart the importance of keeping money safe and reward them for looking after any pocket money.
What should you teach 5-7 year olds?
This is a great opportunity to reinforce the concept of saving, but you should make it fun. Discussing some of their wants and how to achieve them is good but putting it into action is even better. Let them save for a new toy and involve them in the shopping, so you can try to save some money together.
What should you teach 8-10 year olds?
At this age, you can teach children about things they want and need. Perhaps get them involved in the weekly shop or have them select things for their packed lunch on a budget. Help them save the remaining budget to reach a goal they want and introduce the concept of earning money through chores.
What should you teach 11-13 year olds?
Money lessons can be a great way to start giving children their independence by having them take responsibility for their own spending habits. Having goals, income, and wants is an effective way to let them become independent decision makers.
What should you teach teenagers?
Money becomes a driving force at this age, between expensive trips, learning to drive, hobbies and even clothing. Earning their own income is important and so is making their own financial decisions.
For things outside of their wage packet, you could introduce concepts like borrowing. For example, you could explain how a loan works from companies like Norton and set up your own internal loan between you and your child. This can be an effective way for them to pay for a trip without a handout.
This is also an excellent time to get your child a bank account, especially if they’re working. Helping them with their first wage packet can be a great way to teach them how to hold onto money they may be tempted to spend.
Talk about money habits as a family
Talking about money as a family isn’t always the most comfortable thing, remember though – the more you talk about money, the easier it becomes. There are a few reasons you may want to talk about money with the family, some could include.
- It sets realistic expectations about what you can and cannot do. If an adult child knows things are tight, they may take different avenues to achieve their goals such as learning to drive.
- Discussing finances helps children understand the value of money and may impart knowledge that helps them spend and save better.
- Talking about money could reduce financial conflicts by creating understanding.
Additionally, being transparent can be a great way to lead-by-example when it comes to saving, spending, and budgeting.
Introduce saving as a lesson about money
Even now, saving money can be difficult to do. However, next to earning, it’s one of the most important skills to have. Teaching kids good money habits includes helping them learn to save. The earlier you start, the easier it becomes when those savings goals begin to get bigger.
Saving money has multiple benefits – not only does it teach children to be patient and work towards something they want, it instils an inherent value of money in them. By saving, they can get a sense of what each payment into their piggy bank (or bank account) is worth. You don’t have to wait until your child is earning money to discuss saving. Pocket money or money for birthdays and Christmas can all be good opportunities to encourage saving.
Want to learn more about handling your money? Look at our Know How section for more.