How to teach kids about money

Mathilda Volant

by , Team PensionBee

at PensionBee

22 Oct 2021 /  

Smiling child sat on a stack of books.

Kids are curious. Most parents will be all too familiar with a steady stream of daily discoveries. While keeping the world magical may seem the right move on some topics (Father Christmas for example), actually an honest approach to money can work wonders for them.

Why is teaching kids about money important?

Knowing where money comes from, how much to save and spend, and some basic maths! Learning to be financially literate early on can create a lasting effect on their future finances. These skills are invaluable to all of us.

Here are some tips to teach your kids about these topics.

Teaching the basics of money

There are three basic principles of day-to-day money management to teach your children: earning, saving, spending. In that specific order. More specifically, learning to live within your means, measuring what you can afford to save, as well as what you can comfortably spend each month.

1. Learning about earning

By teaching them about how work creates income, your children may value hard work more. Telling them that ‘money doesn’t grow on trees’ doesn’t build understanding. But being honest, and showing them how your payslip supports essentials in life like the following, can:

  • Council tax
  • Groceries
  • Household bills
  • Insurance
  • Mortgage, or rent

Leading by example is an important part of parenting. So why not let your kids watch you pay the bills? Even if they’re only peeking over your shoulder, exposure to healthy habits can rub off on them and help them understand how income and expenses are connected.

Tip: pocket money for chores

Money is earnt (most of the time). You can give your children the toys they want, or you can ask them to work towards them. Take the ‘I’ll pay half, if you pay half’ approach. How can they pay their own way? Through chores of course, and pocket money in return.

2. Saving for happily-ever-afters

Concepts like ‘actions have consequences’ are often interpreted as negative by children. Refreshingly, saving is different. The act of saving money often has very positive consequences for them - through delayed gratification.

Tip: choosing their own goals

To save money effectively it helps to have an objective. Kids are familiar with wishes from fairy tales, so explain that saving money moves them closer to achieving those dreams. Disneyland could be out of reach for an average seven year old, but these ideas aren’t:

  • Concert tickets, or music subscription
  • Extra accessories for their bedroom
  • Games, or a game console to start with
  • Toys to play with, or a bike to ride

See, there are tons of achievable goals your children can reach for themselves. In saving for their own future they’re making a small step towards financial independence.

3. Avoid sloppy spending

After earning and saving a portion, you’re left with the spending money. So the next lesson is moderation. Children can be impulsive and impulse buys are always a slippery slope. Teaching your children to consider purchases carefully could help them buy better. Some good buys for kids are:

  • Big books (filled with big words!)
  • Colouring in books
  • Durable bags and shoes
  • Games everyone can play together
  • Kid-friendly technology

Odds are ‘buy cheap, buy twice’ is hard when kids are constantly growing out of everything. Spending is essential. But weighing up the cost against its lifetime some items are best bought cheaper (clothes) and others can be considered an investment (consoles).

Tip: spending they can see

Kids ought to know their spending history to make connections between how buying affects their bank balance. Products like Starling Kite (a debit card designed for kids) gives parents control limits and visibility, which may teach kids skills like accountability and budgeting.

Different lessons for different ages

From teaching toddlers to teaching teenagers, there are different methods of educating your children about money dependent on their age. And each child is unique. Finding new and fun ways to make money interesting for your child is important.

Counting with children

Young children are tactile. They learn through touch first so showing them coins and other objects to begin making connections with the cost of things. You can create games about the process of buying and selling, like playing shopkeeper, to engage them.

Preparing preteens

Around this age they’re keen on being independent. Helping them understand how money is managed, through a mixture of leading by example and giving them experience. Rewarding them gradually as they take on more responsibility is a great introduction to money.

Teaching teenagers

Money is a topic most teenagers are actually interested in. Allowing them to earn their own money (through pocket money) enables them to try prioritising their spending habits. Whether it’s saving up for big-budget purchases or splashing out on smaller items.

A financial education for life

Children are given a financial education in secondary school in England, and primary school in Northern Ireland, Scotland and Wales. But between schools the level of this learning can vary. Research suggests only four in ten children report receiving financial education.

Outside of school you, as their parent, can provide them with information about managing money. Supporting their financial education through showing them what positive habits look like, from saving for their first home to building a million pound pension..

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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