It’s never too early to learn about financial management. Money makes the world go round, after all, so it can have a big impact on your life.
So, why not spend some time with your kids to teach them a thing or two about money while they're still young? That way, they can be better prepared when the time comes for them to start paying bills and managing their own finances.
Here are some tips that could help your little one learn about planning, budgeting and saving.
Talk openly about money
The first thing you could do as a parent is just start talking about money with your children. It sounds simple, but when you’re a kid, it’s difficult to fully understand where money comes from and how it all works, and just being open to speaking about it with them could make a big difference.
A good place to start could be by telling your little one about your income and how it actually gets to your bank account. Then, don’t forget to show them a list of all the expenses you typically have to pay each month (including the things they probably don't even know exist, like water bills, broadband, and council tax) and how this compares to what you get paid.
Also, with the growing dematerialisation of money, and children often being given an allowance and gifts in the form of coins they put in a piggy bank, they may struggle to understand what the plastic cards you keep in your wallet are for. So, make sure you explain how debit and credit cards work too.
Use games to teach your child about money
A good way to teach kids about money is to play games with them, especially when they’re still young. And it doesn’t need to be super complicated ones either.
For instance, why not start a role play where you’re the merchant and they need to buy food from you with a pre-defined amount of money? You could assign prices to different items, then challenge them to make a buy enough items to make a meal.
As your child grows older, you could then get them more involved in managing 'real' money by giving them a budget and asking them to plan the weekly food shop.
And if you want to teach your kid about the importance of saving and delayed gratification, then how about organising some Monopoly nights with them? – Obviously though, we can’t ensure there won’t be any fights!
Let your child earn their own money
If you want your child to learn the value of money, have you thought about giving them pocket money every time they complete a chore at home?
It doesn’t need to be much – in fact, on average, Brits gave their kids around £7.58 a week in 20221. All you need to do is set a rate for each task they complete and hopefully, by having to work to earn money, they should understand the real value of it. Plus, they can save it for the things they want to buy, like sweets and toys.
Also, it could be wise to transfer the money into a bank account for them instead of giving them cash, as this will give them a better understanding of how things work in real life.
Get your child a piggy bank
It’s the same situation every year. Your child gets cash on their birthday and Christmas, and they spend it straightaway because it's there.
If you want to encourage them to save but they're too young for their own bank account, then it could be worth getting a piggy bank where they’re able to tuck money away.
But don’t stop there to show them the advantages of putting money aside. Get them to compare what they could get if they were to spend their money immediately and what they could buy if they wait for money to build up in their piggy bank over time.
Surely, the vision of getting a bigger toy or a better video game should do the trick when it comes to motivating them to keep saving!
Discuss wants and needs
At some point in their adult life, your child will need to budget – and if you want them to be good at this, it’s important to teach them the difference between 'wants' and 'needs'.
Tell them that 'needs' include the basics, such as household bills (like council tax, water, and gas and electricity), as well as food and clothing, and that paying for these should be prioritised each month. But don't forget to explain why this is.
Then, explain that 'wants' covers all the rest, including the fun stuff, like holidays and meals out. Make sure you mention that as nice as these things are to have, they’re not essentials, so they should be put on the side-line if money is tight.
To help your child grasp the notions of wants and needs better, maybe try taking them through your budget? Show them how you plan your spending and don’t hesitate to talk about the choices you’ve got to make to keep the family’s finances in order.
Lead by example
Children learn by example. So, if you want yours to be good with money, you’ve got to be financially savvy yourself.
Try to have an emergency fund where you transfer money into regularly (it's typically recommended that you have between 3 and 6 months' worth of outgoings tucked away in one). But make sure your child knows that you have one and the reason why it exists.
It might seem a bit negative to talk about things like possibly losing your job with them, but they may feel reassured that you have a plan in place if this were to happen.
Also, when grocery shopping, show your child how organised you are. Stick to your shopping list and avoid impulse buys due to sales, unless you'll need the item in future. Your child is looking up to you, so make sure you set a good example.
Open a savings account for your child
If you want your child to learn the benefit of budgeting and putting money away, then why not open a savings account for them? If you can afford to each month, you could put a bit of cash in their account and show them how their money is growing, with the intention being for them to use these savings in the future. For example, for their first car when they pass their driving test.
It could also be wise to tell them about things like interest rates and account fees when you open the savings account. These can be tricky to get your head around, and they may have a big impact on how much their money grows over time.
Teach your child about investing with a Junior ISA
In addition to teaching your child about the importance of saving money, it could be a great idea to introduce them to the idea of 'investing'. After all, the two do go hand-in-hand, both being ways to potentially grow your wealth. And if you want to build up some money for your child to use in future, investing could help you do just that.
How, you ask? Well, by opening a Junior Stocks and Shares ISA. With this type of account, any savings you put away for your child will be invested in the stock market, giving it the opportunity to grow by generating returns. They won't pay tax on any gains they make (meaning they can keep more of their money) and because this won't be tied to fixed interest rates, their money could grow further than it would sitting in a savings account with a low rate.
One thing to note, though is that the amount you can put in a Junior Stocks and Shares ISA is limited. Currently the annual allowance is set to £9,000 (though this is subject to change in future).
Another thing to be aware of is that any money you put in a Junior Stocks and Shares ISA belongs to your child and will be locked away until their 18th birthday. This is when they'll gain full control of the account, and it will automatically turn into an adult Stocks and Shares ISA, which will allow them to keep putting money in if they wish.
But just opening a Junior Stocks and Shares ISA and paying into it isn’t necessarily enough to teach your kids about investing. If you want them to understand how it all works, make sure you keep them updated about their account and show them what they're invested in and how their investments are doing as the years go on.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up. This means that with a Junior ISA, your child could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.