Not enough people make financial education a priority for children, which results in young adults entering a surprisingly complex financial world without the tools necessary to survive and thrive. Even if your children are very young, remember that the sooner you start teaching them about money and personal finance skills, the more adept they’ll be at applying those skills when the time comes.
Educating, motivating and guiding children and grandchildren to become regular savers and investors will enable them to keep more of the money they earn and do more with the money they spend.
Understanding money matters is a valuable life skill. What children learn about money in childhood will shape their own attitudes and behaviour later on. By instilling a few basic principles early on, you could help influence, for the better, how they manage their money in adulthood.
Help your children avoid spontaneous purchases by setting goals and prioritising what they spend their money on. This will prepare them for making good spending decisions in the future. While a child will naturally ask for the latest games console, making them understand the difference between needs and wants will help them make sensible spending decisions from a very young age. If they want the latest video gaming machine that is likely to cost about £400, explain how long it would take an adult to earn that amount of money. Create a specific example to put it into perspective.
Help your children to set a goal and track their savings and their spending. Nearly every toy or other item children ask their parents to buy them can become the object of a goal-setting session. Such goal-setting helps children learn to become responsible for themselves. A great way to visualise goals for children is to create a savings chart you can display (for example, on the fridge). That way they can track their own progress easily to see how much they have saved up to that point and the number of weeks still to go.
Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money children save at home. Children can help calculate the interest and see how fast money accumulates through the power of compound interest.
Providing pocket money in lower denominations makes it easier to allocate a proportion of income to different goals. Labelled jars work to separate money – one for saving, one for spending and one for donating. Any time they earn money by doing chores or receiving birthday gifts, encourage your child to divide the cash equally among their jars. It’s not a huge act, but it does show that it’s okay to spend some money, as long as you’re saving as well. Once they’re older, their bank and investment accounts can mirror the split. Keeping good records of money saved, invested or spent is another important skill young people should learn.
The sooner you teach your children or grandchildren about the value of money, the more prepared they’ll be for adult life. Small steps can set them on the path to money maturity, enabling them to survive and thrive financially in adult life.