As an adult, you want to sleep easily knowing that your child or grandchild is going to be fully prepared to tackle adulthood and be happy and secure throughout their lives. Alongside key life skills such as relationship building, staying safe and staying healthy, being able to manage money is a pretty important part of growing up. But where are they going to learn about this?
It is arguable that managing money and finances is a life skill many children in the UK learn little about. Parents are usually more than happy to guide their children through making friends and staying safe in the playground, but as a society (in general) we view talking about money as a taboo topic, and most of us wouldn’t dream of discussing it with our young children.
Capital are not suggesting that you should sit your children down to discuss inflation, interest rates and taxation, or the budget deficit. However, teaching children to have good money ethics, and helping them to understand the real value of money in a fun and active way, can help them to be financially independent and comfortable in the future, forming a healthy and balanced relationship.
3-5 years old
An effective way of teaching an infant good money habits is to introduce them to the idea of delayed gratification. One way to familiarise a child with this concept is through a reward sticker chart. By earning a daily sticker for good behaviour and after a certain number of stickers have been collected, they can receive a treat, as opposed to getting a smaller treat for each sticker. This teaches children to earn bigger rewards and wait until they have saved up enough to have that treat.
Another way to introduce a child to money is to involve it in their imaginary play; for example, playing shops or cafes. This will allow them to get used to and understand the concept of money and the power of exchange.
6-8 years old
At this age, a child will most likely have the basic skills to enable them to help a little with decision-making regarding money. Taking your child to buy the weekly food shop and letting them help with budgeting, counting out money to buy the items and handing the money to the checkout assistant to pay, all this should help them to understand the value of money, and learn how to budget. Every month, have a week with your children where only cash is used.
By now, children may be more rational and responsible, so this is a good time, if you haven’t already done so, to introduce pocket money. Delegating small (safe and age-appropriate) tasks to your child to earn some pocket money on a weekly or monthly basis is a great hands-on experience for them. A piggy bank can also encourage them to save. Giving your child the practical knowledge of budgeting, saving up for things they want, and a stronger understanding of the value of money will help them realise there isn’t a ‘magic money tree’.
When your child wants a more expensive item such as an Xbox, tablet or new bike, it’s positive to encourage conversations around how much things cost, and how many hours an adult may have to work to be able to pay for that. This may help them gain a better idea of the value of money.
Take a look at this video
The teen years
Your teenager is likely to be more independent and already branching out from the family to spend time with friends. If this is the case, they will usually be asking for more money to spend on social trips and personal items. To help your teenager practise budgeting, you could increase their pocket money so they are able to use it to purchase some of their personal items and social activities themselves. This will help them to make important decisions, prioritise spending, and save up for things they really need as opposed to simply want.
Offering your teenager incentives to save up for a certain big purchase such as holiday spending money, like doubling the total amount of their pocket money they manage to save, can be very motivational and help to embed the value of delayed gratification.
At Capital, we believe in financially educating and preparing children for adulthood, and encouraging open conversations about money.
If you would like to discuss this further, please contact your Capital financial planner, who would be happy to help you, or call us on 0207 398 6600 .