Managing money is an important skill that many parents don’t know how to pass on to children. Many teenagers leave home for university or college unable to budget and make their student loan last for a whole term. With mounting student debts, it’s important to help your child learn to manage their money before they leave home.
When you think about it, your job as a parent is to make yourself redundant. By the time your child leaves home, you need to give them all the skills to care for themselves and lead happy fulfilling lives. And that includes helping your child to be financially independent. Often money is a taboo subject in families, like the topics of death or sex. Particularly the amount Mum or Dad earns in their job. Or what they spend their money on. However, there is a bigger issue here – if your child doesn’t understand the way money works, they will struggle to be financially secure.
When you think about it, it’s not very fair to expect a child to manage their own money when they have never before had to budget, pay a bill, pay for a weekly shop, or been taught the dangers of getting into debt.
If you are lucky enough to have a good income, your child may not be familiar with the idea of bargain hunting, saving and budgeting. Many families feel fortunate that they don’t have to scrimp and save like their parents, and feel they are doing their children a favour by providing everything they need and want. Couple this with the increase in guilt parents feel as they work long hours, and children are learning that money management is simply a matter of persuading parent to part with their cash! If your child grows up and gets everything they want without earning it, you are teaching them to feel ‘entitled.’
Learning about money will make your child feel more empowered and in control of their lives. They will learn at an early age that they can earn the money they need. And if they learn basic money principles, it can also make it less likely that your child will need to rely on the ‘bank of mum and dad’ when they leave home.
Money management for children should start when they’re toddlers. I remember my son at the age of three and four used to love to go to the shop and buy a packet of sweets with 50p because he left the shop with not only the sweets but in his mind, more ‘money’ than he went into the shop with.
So how do you teach your child about money? Here are my top ten tips for children of different ages to learn how to be good with money.
Ten fun ways to teach Toddlers about money
- Bargain hunting. Take them to a car boot sale. Allow them to take £2 of their pocket money and see what bargains they can pick up.
- Help them to learn about banks. Go to the bank and hold your toddler in your arms and explain what you are doing – get your toddler to hand over any money or cheques
- Have a savings account. Set up an account for your toddler. Help him to put money in and show him how he or she earns ‘extra’ money in interest.
- Make up fun money challenges. Give your child a handful of change and challenge them to add up the value of all the coins. Can your child find the right change to pay for something in a shop?
- Set up good spending habits. Give pocket money in cash. Have rules about how it can be spent. For instance, a good strategy is to put 50% into savings, 10% into a charity fund and 40% can be spent. Go with your child to put the money into the savings account. And let your child choose a suitable charity for the charity fund.
- Encourage them to earn. All children – even toddlers- should be encouraged to do some jobs around the home for love. However, they should also be able to earn extra money by doing additional jobs at home. Make a fun chart with photos, which they can decorate, of jobs and the money they can earn.
- Show them how to save. If your toddler wants something, encourage them to save up for it. Startup a fund in a jar.
- Encourage them to pay for things. When you are in shops encourage your child to pay for items, and check the change.
- Read books about money to your toddler such as Daniel Britton’s Financial Fairy Tales.
- Play games that help your child learn about money. Get them to set up a shop or play games such as Learning Resources’ Money Bags Coin Value Game, My First UK Money Snap or Orchard Toys’ Pop to the Shops
Top 10 Tips for Children aged 5-12
- Teach money management. Although you may find balancing the family budget boring, children don’t! Get your child to help you check the money you’ve paid with the credit card bill or your bank account. Show them the bills that arrive – explain what they’re for – and get them to help you to ‘pay’ them.
- Budget ahead for a holiday or weekend away. Ask your child what ideas they have for boosting the fund. Keep the fund in a special account, and work out how much you need, and where the money is going to come from.
- Play guessing games. For instance, guess how much the family holiday costs. Get everyone to guess how much the holiday will cost. Keep a tally of all the costs- transport, accommodation, food, entertainment and all the extras. Award a certificate to the person who is the closest in their guess.
- Plan fun on a budget –give your child a challenge to plan a fun family day out for £10 or less. You will be amazed at how creative children can be when you give them a challenge to achieve.
- Keep a jar for small coins. Encourage your child to count these up and bag them up in £1 bags. Then take them to the bank and cash them for a family treat.
- Set your children a challenge. To boost their income for one month. Or perhaps to support a charity. They could do a car boot sale, washing cars, rake leaves, sweep snow, or sell their old things (maybe on e-bay?) Or could they come up with a creative idea for a mini business?
- Save on shopping. Calculate your shopping bill for a week. Ask your child to help you make a saving the following week. Go through the bill and see how you could make savings. Keep going if you can – and learn to do shopping cost comparisons, use coupons, find cheaper alternatives, etc.
- Work out where their money goes. Give your child 12 envelopes. One for each month of the year. Encourage your child to keep receipts of everything they spend their money on, then at the end of each month work out what they spent their money on. And how much they saved.
- Work out where to put their money. Get your child involved in researching the best savings account for children. Identify the criteria (interest rates, ease of access, bonuses etc.) and then move their savings to the best account they can find.
- Set up a banking system at home. Encourage your child to save their money and offer interest and ‘bonuses’ for good saving habits. Every so often transfer the money into their ‘proper’ savings account.
Tips for Teenagers (13-18)
- Project about money. Teenagers love to do things with you, especially if they are learning something new. Plan a project together to learn about money. Include topics like the dangers of borrowing and paying interest, the real cost of a loan, what APR and AER means, and the best saving account for children. You can include subjects like how to budget, budget sheets, credit vs debit cards. Your child will love spending extra time with you. And who knows, you may learn a thing or two!
- Make budgeting fun. Get your teenager to write down a list of everything they most want to have or do. Then get them to keep track of their money for a month – write down everything they spend in a notebook, and at the end of the month put it on a spreadsheet, in different categories. Ask them to identify ways they could earn more, and ways they could spend less. Startup a saving fund and encourage them to save for the thing they want most.
- Find out what they want in the future. Ask your child to tell you about the sort of house they want to live in, the sort of car they want to drive and if they want children, pets, holidays, etc. Challenge them to work out the cost of buying that house (deposit, mortgage repayments, hidden costs) the cost of the car including running costs. How much it costs to raise a child until they’re 21, keep a pet, etc. Then break it down into monthly costs. Work out the monthly cost, and then what their salary would have to be able to take home just to pay that amount. Then work out what career they might need to earn that salary. Do the same exercise for a one bedroomed flat and second-hand car.
- Offer a bonus for saving. Encourage your child to save 50% of all the money they receive through pocket money, earning, and gifts. Work out a challenging, yet achievable savings goal, and offer to give them a small bonus if they achieve that goal in a year.
- Boost their income. Challenge your teen to find fun ways to increase the money they earn each month. Could they run a car wash, babysit, help a neighbour clear a garage or garden shed, or mow lawns?
- Feed a family of four for £40. The next challenge is to buy all the food and drink for everyone in the family for a week for £10 per person. Keep a running total, and have a chat afterwards about what they learned.
- Dare your teen to wait a week every time they choose to make a purchase. When your child identifies what they want to spend their money on, ask them to wait a week before actually buying it. This will help your child develop will power and think carefully about the purchase. They may even change their mind before buying the item, which will be a powerful lesson in the value of waiting.
- Presents on a budget. Start a family tradition that cards should be hand-made and presents for birthdays and Christmas should cost a fiver. Help your child identify suitable presents such as hand-made sweets, a compilation CD with the recipients favourite songs, writing and framing a funny poem, hand painting a piece of crockery or framing a special photo. See how creative and inventive your child can be.
- Find a charity to support. Ask your teenager to work out whether they would prefer to support a charity that is local, national or international? Would it support children with terminal illnesses or special needs, tackle child slavery, help homeless people or support families in poorer countries? How would donations be put to best use? Research carefully to plan which charity to support. Then encourage your child to put aside 10% of the money they receive to help others.
- Make money with a fiver. Give your child £5, and see how much money they can make with it. Perhaps they could go to a car boot sale and sell their bargains on e-bay? Or buy a bucket, cloth and detergent and offer to clean cars? Could they make cakes or drinks to sell? Or make gifts or cards?
The Financial Fairy Tales are some great materials I recommend for the under 10s. Written by my friend and financial education expert, Daniel Britton, the books make learning important money values and tools fun through stories, puzzles and games. If you have older children and teenagers his new book “Grow Up Rich” is part of a national financial education campaign. You can find out more here http://crowdfunder.co.uk/moneybook