Learning how to be responsible with money is a valuable life lesson and if children are taught good money habits at an early age, they are likely stay with them.
However, the way we use money has changed massively since many of us first started getting pocket money. There are now many more options for our children when it comes to saving.
So, to mark My Money Week – a national campaign aiming to get young people interested in their finances – we spoke to Al Ward, Head of Customer Savings at Choices by Standard Life Aberdeen, to create a list of tips for parents wanting to teach their children all there is to know.
Cash for starters
Earning pocket money is still common amongst most children. Many parents pay their child an amountin return for completing chores or to reward good behaviour.
It’s a great way for younger kids to get familiar with the value of coins and notes, and having their own hard-earned money can make them feel grown up.
Once a child has some money of their own, a physical piggy bank or savings jar is a great way for the younger ones to watch their savings grow. It’s also a good time to start talking to them about what they would like to do with their money and create habits that will stay with them into adulthood.
Spend, Save & Give
If you do choose to reward your child with pocket money, it could be the perfect opportunity to introduce the concept of Spend, Save and Give.
Spend – your children can spend an agreed portion of their money on whatever they want, e.g. a magazine or sweets.
Save – a second portion is saved either for something in particular, or for longer term savings in a bank account perhaps.
Give – encourage them to use some of their own money to help others. As a family you might have a favourite charity you support for example, or alternatively awareness days and events like Comic and Sport Relief are a great time to discuss donating.
Cards have overtaken notes and coins as the most common way to pay for things. For older children, pre-paid debit cards are available so pocket money can be paid straight from your bank account into theirs.
These cards can be used online or in shops giving your child some independence when it comes to making choices but parents can retain a high level of control, including setting limits on how much children can spend and what they can buy.
Most also come with a smartphone app so if your child has a phone, you can both track how much money they’ve earned and how much they have spent.
But be aware, they all come with charges, so do your research before you choose a provider.
Lessons on the power of saving
Working towards longer-term saving targets can be really rewarding and teaches children that resisting the temptation to spend immediately ultimately means you can do much more with your money.
For older children, you could promise to pay them a ‘bonus’ if they hit an agreed savings target. For example, if they’re saving for a new game that costs £25, say you’ll give them the £5 if they can save £20.
This gives you an opportunity to explain how saving and investing for the long-term works, why they might need to do it and how it can help them generate more money in the long run.
Kick-start a savings habit
Opening a savings account is another great way to introduce kids to saving and explain concepts like earning interest. It’s an exciting and grown-up thing for a child to do.
A Junior ISA may be right if you are happy to invest in stocks and shares and comfortable your child can’t access the money before age 18.
Alternatively, bank accounts for children are available from the age of 11 and offer most of the same features as adult accounts. You can’t have an overdraft, but you do get a debit card and you can set up direct debits and standing orders.
Unlike pre-paid debit cards, they are fee free, but you don’t have the same degree of control over your child’s spending so it’s up to them to be responsible with their money. Perhaps try encouraging them to put some of their pocket or birthday money into savings and watch it grow.
Building a budget
Keeping track of your expenses and learning how to budget is another key element of financial literacy.
To do this, help your older children write a list of all their monthly incomings and outgoings, including subscriptions and money for treats. Don’t leave anything out and try to encourage them to put regular amounts away as savings too, creating a cash buffer in case of any unexpected expenses.
Budgeting is also a perfect way to give your child an overview of their finances and how they are set to achieve their financial goals. It’s a great motivation to seek out ways to perhaps keep costs down like switching mobile phone provider, for example, to save more money every month.
They might also learn the need to sacrifice buying something now in return for the ability to afford something better in the future.
Protecting personal information is just as important a lesson as spending and saving.
Chances are, your kids are more tech-savvy than you, but there are still things you should do to ensure they are protecting their identity online.
Keep an eye on your child’s social media accounts and make sure they know about the dangers of sharing personal information via email or other forms of digital communication.
Teach them the benefits of using websites like PayPal for transactions and make sure they are alert to keeping an eye out for any scams both online and offline. For example, they should know that their bank would never ask them for personal or account details by email or text.