Do you ever wish you were better with money? It often feels as if everyone else knows what they are doing financially, but you are floundering. Wouldn’t it be great if you could wind back the clock and start all over again?
Sadly that can’t happen, although there are many things that you can do to improve your finances. Take a look at our recent article How to get your finances sussed in 2022 for helpful tips on how to do this.
But one other important thing you can do is to start helping your children to develop good money habits. The earlier they start learning about money and how to manage it, the better.
So in this article we look at five key lessons that you can teach your children about money.
It is good for children to learn that in life, most things cost money. When you are out and about with them, you can help them to understand the role money plays in our world. Whether it’s houses, cars, trains, buses, food, drink . . anything you interact with can be used as an example of how money is used.
You can make this more specific when shopping or in a cafe or on a day out. Show them the prices of various things and explain that you need money to exchange for whatever it is you are getting.
Leading on from Lesson 1, Lesson 2 is that at some point, money will run out. And at that point, you will not be able to buy what you want.
A good way to do this is if you are in a shop or cafe you can show them different options and explain that they can only buy something up to a certain value. So they will need to make a choice.
It can be easier to do this if you are using cash. But if not, you could use a phone calculator to put the prices in and make sure the total doesn’t go above a certain amount. Either way, the key thing is to help them learn to prioritise rather than assuming they can just buy whatever they want.
Let’s now look at various ways that you can help your children to track their money.
We have just been looking at simple examples of helping your child choose how to spend money in a shop or cafe. But helping your child keep track of their money in general is a key way of building their overall financial skills. Later in life it will enable them to understand where their money is going, and see where they could cut back if needed.
One simple way to help younger children if they are using cash, is to make sure they keep their money somewhere safe, for example a piggy bank, cash box or purse. Also give them a notebook where you can help them to record details of everything they spend, and work out how much money they have left.
You may want to consider giving your child a prepaid card such as Rooster, GoHenry or Osper. Prepaid cards enable your child to spend money without carrying cash, much like a contactless debit card. There are also related apps to help them track their spending and learn more about finances through tools such as videos and interactive quizzes.
For older children and teenagers it may be time to set up a bank account for them with a debit card. They will then be able to check their spending online by logging into their bank account.
A child is never too young to understand that money doesn’t grow on trees. You can explain to young children that most money comes by being earned. Older children can get to grips with other sources of income, such as benefits, pensions, investments etc. But for younger children the simple concept of you get what you earn is enough to start with.
A good way for children to fully understand this lesson is by being given chores to do in return for pocket money. For example, you could give them a basic rate of pocket money but supplement it with additional amounts for different chores.
You can also build an understanding of debt at this point. Perhaps they want to buy something special but don’t quite have enough money. So you could agree to give them a short term loan but explain that this will need to be paid back. You might even charge them interest! Try to help them understand that it is much better to save the money first, because otherwise their loan repayments will begin to eat into the money they have coming in.
We have just referred to savings, and the last key lesson to teach your children is the importance of saving money. The sooner they get into this habit, the better. Financial experts recommend that we aim to save 20% of the money we earn. If this can be started from an early age, it will become the norm for your children.
You may want to set up a savings account for your child where they can see their savings grow. Interest rates are low at the moment, but they might earn a little bit on their savings. You could also help to motivate them by giving them a little bonus when their savings reach certain milestones.
They will also need a bit of guidance about when it’s ok to dip into their savings. You need to find a balance between them being able to benefit from their money from time to time – perhaps to buy something special, or for holiday or Christmas spending – but also not dipping in so often that there is soon nothing left.
It’s also good to discuss the concept of generosity with them. Perhaps your family or their school or community has a favourite charity that they support. If so, you might want to suggest to your child that they give a little bit of their money to this from time to time. It’s important that they appreciate not just the value of money, but the fact that there may be people who need help that money can buy.
We hope that the above ideas help you to help your children develop good money habits. The sooner they start to do this, the better foundation they will have for a successful financial future.
For more lifestyle and financial tips check back here with us soon at Loans 2 Go.
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