6 steps to a money-savvy child

Boy and piggy bank
We all want our kids to have the very best future, and ensuring they’ve got money sense is crucial to help make it happen. Mum-of-two and financial whizz Emily Richards shares a few down-to-earth strategies to equip your child with money management skills for life.

Step 1: Be bold and have “the (other) talk”

If you don’t talk to your children about money, you’re not alone. A Forbes magazine survey showed that parents feel more comfortable discussing bullying, drugs, and smoking than family finances, and find talking about investing just as difficult as “the talk” about puberty. Yet children say parents are their most important providers of financial knowledge, so it’s time to step up!

Step 2: Empower your kids with financial confidence

Help your kids be involved with the money choices you have to make. (As they get older you’ll discover you’ll have no choice in this in any case!)

  • Explain to your children what you’re doing when you shop – if you go together, give them your shopping list and have them help you choose what to buy. Point out promotions like Buy One Get One Frees, hand over any discount coupons you’ve collected and ask them to help you work out whether it’s worth taking advantage of the offers.
  • Talk about how you make choices about what to buy – or not to buy.
  • Tell them when (and why) you’re being careful about money.

Don’t forget that children are very perceptive and will pick up your worries. If you can’t afford something, be truthful but brief in your explanation (‘It looks great but we can’t afford it right now.’). Suggest a free or cheap alternative activity, instead – playing football in the park, watching a DVD together or staging your very own British Bake Off at home, for example.

Step 3: Tell your child why you’re saving for them

By the age of 2 around 40% of children in the UK have some form of savings account – a fantastic achievement in these tough economic times. But whether you’re able to save regularly for your child or can only manage to put something aside occasionally, chances are you’re not telling your child about why it’s important or even that you’re doing it at all!

Everyone needs to save – to buy something special, for an education, for a deposit on a house, or for a pension. So share your savings strategy with your child. What kind of plan have you opened in their name (you might have to revise your facts before you explain it if you’re anything like us!)? What are you hoping they will do with the money when they’re older? Do you also put money aside for other special purchases like holidays? By explaining to your child that (where possible) saving regularly allows you to plan for the future you’ll be helping them understand the everyday financial decisions we all have to make.

Step 4: Make saving real and relevant

Kids learn far better if they see how money works in real-life situations. Just keep it simple and suggest some common-sense strategies, for example:

  • Don’t spend more than you have. Get your child to make a simple bank-statement style chart that shows money coming in (pocket money, anything they earn), and money going out (what they’ve spent.) This way they’ll begin to understand what a statement shows and how to read it.
  • Paying bills and budgeting may seem a long way off, but by the beginning of secondary school most children will be choosing and using a mobile phone tariff, making micro-purchases (in-app, for example) and buying items on account (downloading from iTunes). Understanding these processes means they (and you!) are more likely to avoid huge and unexpected bills.
  • Open a digital savings account. Our children will be doing most of their banking online in the future; the earlier you get them involved the more familiar and comfortable they’ll be managing their finances on a computer, tablet or mobile phone.

Step 5: See things from their perspective

Children have a very different perception to adults – of time, and of things that are important (or not). They tend to think in the short-term, and to value the things that are popular with their friends, or are ‘of the moment’. Let’s face it, resisting buying gorgeous things and then worrying about it later is something that’s challenging throughout life… not just as a kid! Try to put your sensible grown-up head on though (ahem), and help them to balance a desire to spend all their pocket money with longer-term saving goals. 

Step 6: Be firm and fair

A magazine. A packet of stickers. Then trainers, computer games, gadgets and more… Whatever their age, kids are big consumers – and you’re the person who can buy it all for them. Saying no is hard, but your children won't become financially responsible if you give into ‘I want, I want’ every time they say it. In fact, by giving in you’ll create a whole series of bad habits and there’s going to be a hole in your wallet. Instead, help them stand on their own financial feet.

  • Suggest they save for the item they want. Help them set a savings goal and work out how long it will take to reach it. Could they earn some extra money to put towards their total?
  • Ask for a contribution towards the things they want. Suggest a sum you think is reasonable and achievable (for example, your child gives £5 and you put the other £25 in). Deciding whether they want to spend their own money on something will help them focus on how important it is.

This feature is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent, professional advice for your own particular situation.