Talking money with kids

Sometimes parents worry about introducing children to money because they want to shelter them from ‘adult concerns’. But it’s important that we help our children build a positive relationship with money, and that starts from a young age – Cambridge University research showed that adult money habits are set by the age of 7.

We can teach our kids about money in an age-appropriate way – and by doing this we’re setting them up for financial success when they do leave the nest. Here’s some suggestions to provide a starting point for these conversations.

Youngsters – up to age 4

What is money?

For young children we can show them money, and talk about the different denominations of coins and notes. We can get them to recognise money by the numbers, colours, size and shape, and start to get them to understand that different things cost different amounts.

Where does money come from?

With so much of our money now in the digital realm, it can be hard for younger children to grasp where money comes from. So it’s important that we explain that we earn money through working – they may be a bit young for pocket money, but reward charts could be a good way of bringing this to life.

Wants vs needs

It’s also a good idea to get children to think about the difference between wants and needs from a young age. You could do this at the supermarket by talking to them about how some purchases are needs, and others are wants. You can also talk to them about how different things have different values.

Older children – ages 5 to 12

When children are older, they will often be getting pocket money or even have their own bank / savings account. This is the perfect time to help them to start to understand the decision making that goes with money.

When it’s gone it’s gone

A critical lesson to teach is – when it’s gone it’s gone! Explaining to children that if they are spending money on item A, it means there will be no more money for Item B. Rather than just giving treats, you could put a small price tag on all their favourite goodies and give them a price limit and let them choose what they want to spend that money on.

Spend save share

One method that is becoming more common is the ‘Spend, Save, Share’ approach. Use clear jars for each of these, rather than one piggybank - this also helps children to see their savings growing.

This teaches children to split their pocket money into three categories – explaining the importance of saving up for bigger items rather than just spending everything we have. You can boost their saving by a small amount at the end of the week or month to start showing them the concept of interest, and why saving is good.

Many parents also like to have the third category (share) to encourage giving some portion of money to charity.

Real life examples

This is also the stage where you can start explaining money decisions to your children – for example showing them what a bank statement or banking app looks like. You can explain about paying bills for things and showing them when you do it online. The supermarket is again a great place to help them understand spending decisions – you could for example tell them what your shopping list and budget is and give them the difference if they can find special offers / discounts on items you need.

If online spending and banking is part of your life, it’s also important to explain this to children, and talk about keeping cards and bank details safe.

Teenagers

Responsibility

If they don’t already, it’s good to ensure your teen has their own bank account, and you can encourage them to explore the features in this, such as saving for specific goals and security around online banking.

They may also get their first ‘real’ job – so take time to explain concepts around tax, national insurance and pensions.

You could start to give them increased control – for example working out what you spend in a year on their public transport or clothes, dividing it by 12 or 52 and giving them a monthly or weekly allowance to cover these costs.

Allow them to make mistakes

As with learning anything new, teens are going to make mistakes with money – by spending all their allowance at once, or even perhaps getting into trouble with buy-now-pay-later purchases. As parents, our role is to help them move forward from these mistakes and learn from them. As much as we might want them to avoid mistakes altogether, it’s better that they make them now, with your guidance around, than later down the track when they can get into much more difficulty.

It’s also important to keep the lines of communication open – there have been times when teens have racked up big bills (e.g. on mobile phones) so you may want to still have visibility over any account where this could happen.

Help them plan their next steps

As your children leave school, help them plan the finances to support their next step. Whether that’s further education, finding a job, travel, finding their own flat – help them to build a budget and understand the costs and how they will get enough money to cover things.

Additional support

The Money Advice Service is an independent government-funded financial education site. They have a great section on how to teach children about money, including suggested activities to do with children of varying ages.

There are also many apps and businesses out there to help teach children how to manage money. Most of these allow you to give your children their own ‘account’ where you send them their pocket money and offer a debit card for children. These can be valuable for teaching your children how cards work – including how to purchase things online, and the importance of keeping the card and the number secure.

Some of these services charge monthly subscriptions so it’s worth researching and seeing if one of these is a good solution for your family, or whether it’s best to see what your everyday bank has that might work for your child.