It’s never too early to learn about financial management. So, why not spend some time with your kids to teach them a thing or two about money? Here are some tips that could help your child learn about planning, budgeting, and saving.
Talk openly about money
The first thing you could do as a parent is start talking about money. When you’re a kid, it’s difficult to fully understand where money comes from and how it all works. If you don’t want your child to think money grows on trees, it could be a good idea to be open about your finances. Tell your little one about your income and how it gets to your bank account. Don’t forget to show them a list of all the expenses you’ve got to pay each month. Also, with the growing dematerialisation of money, children 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.
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. For instance, start a role play where you’re the merchant and they need to buy food from you with a pre-defined amount of money. As your child grows older, you could give them a budget and ask them to plan the weekly food shop. If you want to teach your kid about the importance of saving and delayed gratification, how about organising some Monopoly nights with them – obviously, 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 give their child £7 a week1. 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 money. Also, it could be wise transferring the money into their bank account (if they have one), instead of giving them cash, so they get a better understanding of how things work in real life.
Get your child a piggy bank
It’s the same thing every year! Your child gets cash on their birthday and Christmas, and they spend it straightaway. If you want to encourage them to save, it could be worth getting a piggy bank where they’re able to tuck away their money. 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 accumulate in their piggy bank. Surely, the vision of getting a bigger toy or a better video game should do the trick!
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 food, home, and clothing, and should be prioritised. Then, explain that wants include all the rest, including the fun stuff, and make sure you mention that they’re not essentials and 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 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 your child to be good with money, you’ve got to be financially savvy yourself. Try to have an emergency fund where you put money regularly. Also, when shopping, show your child how organised you are. Stick to your shopping list and avoid impulse buys. 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 about saving, why not open a savings account for them? Each month, you could put a bit of money in their account and show them how their savings are doing. It could also be wise to tell them about interest rates and account fees, so they’re well-prepared for their financial future.
Teach your child about investing with a Junior ISA
In addition to teaching your child about saving, it could be a great idea to introduce them to investing. How do I do this, you ask? Well, opening a Junior Stocks and Shares ISA could help. With this type of account, your child will be invested in the stock market and they won’t need to pay UK tax on any profits they make, meaning they get to keep more of their money. One thing to note is that the amount you can put in a Junior Stocks and Shares ISA is limited, and currently the annual allowance is set to £9,000 (subject to change). Everything you put in a Junior Stocks and Shares ISA is locked away and belongs to your child. They’ll gain full control of their pot on their 18th birthday, and at the same time, their account will automatically turn into an adult Stocks and Shares ISA, giving them the opportunity to keep up with the good saving habits. But opening a Junior Stocks and Shares ISA isn’t necessarily enough to teach your kids about investing. If you want them to understand how investing works, make sure you keep them updated about their account and show them where they’re invested and how their investments are doing – you may not see it now, but it could really pay off over the long-term.
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, and you could get back less than invested.