Good money habits are formed early in life. So, why not give your kids a head-start with their financial futures and teach them a thing or two about money management?
There’s a host of games and apps available to lend a hand, so they won’t even realise they’re learning. Here’s a few ideas to get you started…
1. Show them that money doesn’t grow on trees
When kids see cash popping out of a cash machine in the wall and their parents paying for shopping with a seemingly magic plastic card, it’s no wonder that many assume money is an unlimited resource.
So, how can you explain that it isn't? Well, you could start by simply explaining the basics – like where money comes from (for example, earning it in exchange for working your job) and how it gets to your bank account. You could use small toys (like play money or LEGO®) to make it fun and visual for them.
And if your kids are older, why not simply make a list of your own household's income and outgoings for a month to show them where all the money goes and how much everything (like water, electricity and food) costs? They'd probably be surprised to learn that some of those things aren't free!
2. Teach them money management
An effective way to teach kids about managing money could be to give them some responsibility over their own. So, why not consider giving them a weekly allowance to cover the costs of things like their lunch at school and regular activities (like swimming lessons or going to the cinema), as well as a bit extra for other things they'd like to buy for themselves – such as sweets or toys? You could then work with them to put together a spending plan based on this.
This could help them understand that blowing their entire budget on the latest Avengers toy means they can’t afford something else they want – which is an important life lesson.
And as emergency savings fund is also important for healthy finances, you might also want to explain why this is and encourage them to save a proportion of their allowance in a rainy-day fund.
And you could use fun apps to help with this, such as the Aardman-designed Pigby’s Fair. This uses an animated fairground adventure to help 4-6-year olds understand the ‘spend or save’ dilemma.
Older kids, on the other hand, might enjoy a playing a board game, like Payday. This encourages good planning, budgeting and saving habits, and it even rewards players for having an emergency fund and long-term investing habits. At the very least, it’ll get them off the iPad for an hour!
3. Give them money confidence
Kids love pretending to be adults, don't they? And thanks to clever apps like GoHenry, 6-18-year olds can experience the excitement and freedom of owning their very own contactless debit card to make purchases online and in shops, or even withdraw cash from ATMs.
It’s a pre-paid card with a host of parental controls, so there’s no danger of expensive mistakes. Adults can set up regular or one-off payments into the account, block the card to stop it from being used if it goes missing, and even get notifications every time it’s used, all via an app.
Kids will also get to customise their card and earn extra credit by completing tasks, like chores, which could prepare them for the world of work. And the grown-up feeling they’ll get from having their own debit card might teach them to act and think responsibly about their spending by the time they leave for university or get their first job!
4. Teach them that saving is cool!
With credit being so common, it’s easy to forget the sense of achievement you feel when you finally get your hands on the thing you’ve saved so hard for.
Teaching this to your children could be a rewarding experience for everyone. So, the next time they say that they want something, sit them down and devise a savings plan, working out how much of their pocket money they need to tuck away and for how for in order for them to buy what they want.
Completed chores and good behaviour could earn them extra cash to reach their goal quicker. Then when they’ve saved enough, make an occasion of going to the shop and let them pay the cashier. They’ll remember the feeling of accomplishment this gave them, and with any luck they’ll catch the savings bug for life.
5. Introduce them to investing
It’s never too early or too late to learn something new, so why not teach the kids (and maybe yourself) a little bit about investing in assets, like stocks and bonds?
The earlier you start investing, the increased chance your money could have to grow. This is thanks to something called 'compounding', which is where any profits you make are reinvested and start making gains themselves. Think of it like a snowball rolling down a hill, picking up snow and growing bigger.
Plus, stock markets go up and down, and the value of investments fluctuate for various reasons – such as global events and market trends. So, the longer you stay invested for, the more time you could have to ride out any dips these things may cause.
With that in mind, teaching your kids about investing now could give them an advantage when they’re old enough to do it themselves.
Discussing the advantages (the potential for better returns than from cash savings and the power of compound returns) and the disadvantages (fees and the risk of ending up with less than you put in), will help them to make an informed choice.
You could even get them started on their own investment journey thanks to something called a Junior Stocks and Shares ISA. Junior ISAs are savings and investment accounts that allow you to put in up to £9,000 in the tax year (though this allowance could change in future) and your child won't pay tax on any returns they make.
The money will also belong to your child and will be locked away until they're 18.
So, you could use one to start a small investment Plan on behalf of each of your children, then check in periodically to see how their money is doing. This could be both fun and educational for them.
What’s more, you could top it up with their birthday, Christmas or pocket money for them if they want. By the time they reach the age to head to university, they could have a decent nest egg to help along the way, as well as both good savings habits and an appreciation of the power of long-term investing.
Please remember that investments can go down in value, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.