Children need to start learning about money from a young age. Whether it’s the budgeting skills we need to cope with the cost-of-living crisis or the long-term planning that helps buy a house and save for retirement, the attitudes we pick up in childhood help shape the decisions we make for the rest of our lives.
First, get started early. Children as young as seven can grasp the value of money, how to count it and what it means to earn money and exchange it for goods, says a study for the government’s MoneyHelper service (formerly the Money Advice Service). They can understand that you sometimes have to wait and save for things and that some choices are irreversible, say the authors, who are behaviour experts at the University of Cambridge. But they may need to be a little older before they appreciate the difference between luxuries and necessities.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The power of pocket money
The study found that allowing children to make age-appropriate decisions about their money can help them create positive habits. You can start with children as young as three or four, by giving them pocket money and letting them decide how they spend it.
“Once they are old enough not to put it in their mouth, then give them some money,” says Juliette Collier of the charity Campaign for Learning tells The Guardian. “If, for example, they end up wanting to spend that money on sweeties, then make it clear they can’t spend the money on something else. Let them make choices, and experience the consequences.” Introduce the idea of saving and show children that they may need to save their pocket money for a few weeks if they want to make a larger purchase. You could encourage them by offering to pay them a bonus if they save a certain amount.
An introduction to investing
As children get older, expand the topics. Teenagers can learn about investing through their Junior individual savings accounts (Jisas). If they have an investment Jisa, talk to them about what it is invested in and why. From the age of 16 they can make investment decisions about their account, but they can’t withdraw the money until they are 18. This could be a good opportunity to let them make some decisions about their investments.
It’s important to show them all the different assets they can invest in, such as stocks and bonds, as well as ways to do so, such as funds, investment trusts and exchange traded funds (ETFs). Doing this will reduce the chance that their first experience is with cryptocurrencies or other high-risk markets.
Before your child lives away from home for the first time, they need to learn about budgeting. Help them make a list of all their regular incomings and outgoings, such as subscriptions. Show them how much they spend each month then look at how much they have coming in. This is also a good time to discuss saving regular amounts for emergencies. Don’t forget to explain how tax and pensions affect your income. Show them your payslip so they can see how much of a wage is deducted for national insurance, income tax, and pension payments.
Finally, teach your child about debt. Discuss debts you may have, such as credit cards or a mortgage. Show them how the interest rate on debt is much higher than on savings. Explain how not repaying debts on time can affect your credit rating and your ability to borrow in the future. These lessons will hopefully help them avoid problem debts in the future.
SEE ALSO:
Junior Isas: a tax-free fund for your kids
-
Families suffer £20,000 lost income growth – are you feeling the pinch?Average incomes for working age families have increased by just 7% in the past two decades, research suggests
-
How to achieve a secure retirement, as more retirees admit to struggling with debtTwenty-six percent of retirees now have unsecured debt – a sharp rise compared to two years ago – with many underestimating how much a typical retirement costs
-
What is the Enterprise Investment Scheme and should you have one?The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
What are wealth taxes and would they work in Britain?The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
Self-employed? Start saving for your pension nowBritons who are self-employed have neglected to build up their retirement fund. They must act now
-
Why is Britain's industrial base crumbling?Opinion More and more factories in the UK are closing, and the government doesn’t seem to care. What’s going on?
-
Scotland's former first minister Nicola Sturgeon leaves behind a toxic legacyOn the left, Nicola Sturgeon is seen as something of a political hero. That makes sense… but only if you exclude her actual record in office
-
Why strong currency is the key to upward mobilityChange your social status and your life by saving money in strong currencies, says Dominic Frisby
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Has your pension plunged in stock market turmoil? How to avoid creating real shortfallsSliding stock markets are no reason to sell out of your pension in a panic, says David Prosser
