Six tips to teach your child about money matters

The parents of a child who has begged for the latest Lego spaceship, or merchandise from Disney’s Frozen film, probably won’t have uttered the words “delayed gratification” in their response. However, such terms could become a valuable tool in teaching children about money.

Most parents excel when it comes to teaching safety and good manners, but with money few know where to start. Money skills can be a blind spot because so many feel financially inept themselves. Yet research suggests parents’ behaviour is the biggest influence.

“As a society in Britain, we don’t talk about money – it’s a sort of massive taboo,” says clinical psychologist Dr Elizabeth Kilbey. “Unlike other parts of parenthood, there is no playground chatter about the topic and, as a result, parents revert to what they know – passing their habits down to children.”

So how do you teach your children to be financially astute and, eventually, independent?

Lesson 1 Start early

Teach them well – and early – says the government-backed Money Advice Service. Its research suggests that adult money habits are set by the age of seven. But financial lessons must be age appropriate to resonate, says Kilbey: “Young children are not miniature adults. Lessons should be tailored for their age, rather than just made simpler.”

Start as soon as they are able to count and make money the topic of regular family discussions. Time these around dates when they are due to receive a cash gift so that you can talk about saving versus spending.

Lesson 2 Want versus need

While your 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.

One way to do this is to put it into a context that your child can understand, says Kilbey. “If they want the latest Star Wars Lego set that costs nearly £300, explain how long it would take an adult to earn that amount of money.”

She suggests creating a specific example to put it into perspective. How many hours would a teacher, for instance, have to work to pay for that item? “This demonstrates delayed gratification which is an important part of learning about money.”

Parents should reinforce through words and actions that it’s important not to spend more money than you have. One good way is to keep the just-for-fun purchases in check by not giving in to every request.

“It is OK to say no,” says Kilbey. “As adults we are often told no, whether it is from employers or the bank, and children need to hear it.”

However, experts warn against saying you can’t afford it. It’s easy to use this default response when your child begs you for the latest toy. But doing so sends the message that you’re not in control of your money, which can be scary – and create future anxieties.

Kilbey suggest that a more appropriate way is to say: “We choose not to spend our money like that.”

Lesson 3 Know the difference

It is crucial you show your children that money can play a variety of roles in their daily living, whether it is spending today, or saving for tomorrow.

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 make 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 OK to spend some, money, as long as you’re giving back to others and saving as well.

Once they’re older, their bank accounts can mirror the split.

Lesson 4 Learn from mistakes

When kids have their own money, it is essential that they make choices and deal with the consequences of their actions. By experiencing negative consequences first hand, they will learn to make smarter financial decisions.

“Let them take responsibility for small amounts,” says Kilbey. “Allow them to make mistakes. It really is the best way to learn.”

Lesson 5 Make it relevant

Enable children to experience using money on a practical level to experience the emotional highs and lows.

“First, they must save it, then spend it, then experience the euphoria that comes from buying the item they wanted, but also what it feels like to lose some money in the process. This will reinforce the idea that it must then be saved again.”

One way to teach children how to handle money is through routine tasks and household chores. Use the weekly food shop to talk about planning, saving and finding the best value. Let your children hold the list and tick off each item or, if they’re older, give them a few items from the list to find on their own at the best price.”

Using actual cash is important. “It’s only once they have grasped ‘real’ money can you move on to the more difficult concept of virtual or digital money,” Kilbey explains.

When your children are very young, work money concepts into their imaginary games, such as playing pretend store or restaurant. However, Kilbey suggests avoiding play money: “Parents should role play with real money and model the importance of giving it the care and attention it deserves.

“Store it properly at the end of the game, as it will show that it needs to be looked after.”

Lesson 6 Lead by example

Parents have a great deal of influence on their children, and it is not just the positive messages that resonate. Children tend to copy what we do rather than what we say, so limit the amount of shopping trips as a leisure activity, as they might start to think that money is an unlimited resource and that spending is fun.

What’s more, research suggests that a third of parents lie about money. Studies show this will only send the wrong message. They may learn that lying is a good way to cover up financial problems, or that lying about money is acceptable. If your child asks a financial question that you’re not comfortable answering, be honest and say you don’t want to talk about it.

STARTING POINT

If you are a parent who won’t hand over any cash until your offspring have earned it, you are in the majority.

Halifax research has found that around two thirds (65%) of children aged between eight and 15 are doing some form of household chores to earn their pocket money.

So when do you start paying? Dr Elizabeth Kilbey suggests a weekly amount during infant school then spaced out to fortnightly or monthly by the time they are finishing secondary school.

“There has to be some sense of the real world, and pocket money is a good way to do that as it teaches short- and long-term saving and good spending habits,” she says.

The average weekly amount given to children between the ages of eight and 15 is £6.35, according to Halifax.