Teaching Children to Manage Money
All you have to do these days is switch on your TV or open your laptop / phone to be inundated with news reports and stories about what a terrible state we are all in financially. Interest rates that rise and fall with shocking regularity, depressions, inflations, poor future forecasts; you’d need to have a background in financial management to understand it all.
What is very clear however is that many of us have lost our way somewhat thanks to the vast amount of shiny credit we’ve been offered, finance for this and hire purchase for that. Of course just using a debit card rather than cash have all contributed to (in general) a looser grip on personal finances and higher levels of personal debt. Of course we are not all incapable of managing our finances, far from it however, most adults would agree that they wished they had a better education / grounding in money matters when they were children.
For the most part things are getting better, there are tighter controls on obtaining credit unless you can show that you are able to afford it and the majority of people have decided to go back to basics in order to redress the balance however what we really need to do is make sure that our children build a positive relationship with money from day one. This is what this particular article is about, finding ways to help our children with money matters now so that they will benefit in the future.
Talk About it!
It is important for children to understand from an early age that things cost money and that money needs to be earned. Sadly, despite our strongest wishes us grown-ups don’t have money trees in our back gardens (more’s the pity) and so “things” don’t magically appear.
At what level you discuss money matters will depend on the age of your children and their comprehension. An eight or nine-year-old for example should be more than capable of understanding basic budgeting, savings, how to earn money and other financial basics.
Money is not a dirty topic and making conversations about it taboo won’t help anyone in the long term. We don’t suggest you give your five year olds a breakdown of how your household finances work however the sooner they start to learn about the value of things, the better.
Some people think pocket money for kids is a great idea, other don’t. Here at ParentsNeed we respect both views however from a learning about money aspect, “earning” pocket money regularly offers a great learning tool.
How much pocket money you give your children is up to you as a family however it’s best if money is earned via chores and other responsibilities. Working for what they have will help children appreciate it more. Of course if children don’t do their chores or complete any of the tasks you’ve set properly you can reduce their pocket money or stop it altogether for that week.
If you need a list of appropriate chores that can be used towards earning pocket money we have some great examples for you. Choose a selection that can be spread out throughout the week and are age appropriate. We haven’t included good behaviour (being good) or doing your homework to the list because these are a must, a given. These are non-negotiable therefore aren’t chores as such. Of course not behaving well and doing homework can be added to the list of reasons pocket money can be withheld or reduced.
- Making beds
- Doing dishes (washing, drying, loading a dishwasher, emptying the dishwasher)
- Putting bins out
- Hoovering various “zones” or rooms in the house
- Cleaning the bathroom
- Helping with laundry
- Tidying up
- Helping a neighbour
- Going to the shops
- Babysitting for younger siblings
- Preparing food etc.
Budgeting for Kids
The sooner children learn to budget the better as our team member Nicki explains:
“I give my son £5 a week (he’s 10yrs old). He has to put at least £1 of that into savings, more if he wants. He buys his own comics / magazines etc (I don’t buy these at all) and has to make his money stretch.
He’s grasped the budgeting “thing” pretty well after once putting £1 in his savings, buying some candy and then realising that he didn’t have enough money for a magazine he desperately wanted. I had to stay firm. There was no advance on next week, no taking out of savings and no doing extra chores to earn more (with school and homework the chores he has are more than enough, kids need their down time). He quickly learned to put money aside for purchases and to prioritise”.
Saving up for the things we want is important, particularly as when you buy something on credit you often pay back a fair bit more than you’ve borrowed. Getting children into the habit of saving up for the things that they want is a great way to prepare them for the future.
Explain to your children that if they want that Lego kit or video game that they have to save up for it. Make initial saving goals small and reasonably manageable to keep them motivated and hopefully help them to catch the saving-up bug. Let children monitor how well their savings are going and how far they have to go. Once they have enough let them draw their savings out / use their card to go and buy what they’ve saved for. They’ll be thrilled with their purchase, particularly when you reiterate how clever and grown up they’ve been to save up for it themselves.
After their first purchase encourage them to choose another saving goal and continue the practice of saving up to have enough to buy something special. As children get older it might be an idea to add a longer term saving goal alongside shorter ones. This is particularly useful when children get a higher amount of pocket money as they do a lot more around the house or when they have a job at weekends.
The Right Type of Account
There are many ways to save and manage money and we explore these briefly below. What specific product you and your children will have access to will depend on their age, where you live and what bank you’re with. This is a good place to start though.
A Good Old-Fashioned Money Box
For young savers a ceramic pig or whatever type of cute (sorry, we mean grown up) savings pot or tin that is easy to get into is a must.
A Sealed Pot
For long term savings for older children a sealed pot is a great way to save without the temptation to dip. If you fork out for a terramundi don’t be tempted to smash it at the end of the saving term to get to coins as using a butter knife in the slit will (eventually) make all the coins spill out. A tin can that’s purpose made to help with savings that needs opening with a tin opener can be picked up from as little as $1.
Young Saving Accounts
Most banks offer junior accounts for young savers. There are a number of different types of accounts however for pocket money / weekend job savings an instant access account would be better. This allows children to withdraw funds when they’ve reach their target without any delay or fee.
A passbook account requires young savers to physically go into the bank to deposit and withdraw funds each time. This isn’t necessarily a bad thing as it helps to create a habit and makes saving a real thing, especially for younger children. These accounts are often linked to your own if they are in the same bank which also enables you to monitor savings online if you wish although generally speaking these are branch-based account.It’s a proud moment when your child holds that first saving book in their hands.
Many banks offer very basic card-based accounts for children that are “run” by their parents until they are old enough to take control of themselves. This is very much like the basic bank account adults have. You pay in online or in branch and withdraw via an ATM / in branch (different banks with have their own rules about what you can and can’t do with their cards). These are ideal for older kids and provide a stepping stone towards their first adult accounts. They are also great for children with weekend jobs and the like as their wages can be paid straight in. The cards that come with these basic children’s accounts are usually cash machine cards only, not debit cards that may be used online or in-store.
Debit Cards for Children
Over recent years there have been a number of companies popping up who have produced debit cards purely for children. These companies aren’t attached to a bank as such so it is worth checking that any that you choose are regulated by whichever financial ombudsman governs finances where you live.
You “load” money onto the card via your debit card, making it perfect for allowance/pocket money. Many allow you via their app to set up regular payments in and even set certain amounts aside into a separate virtual “pot”. Each version will have their own rules, regulations and features so do your research. Also look out for fees as there is often an annual charge for using the service. These cards are however popular with older children who can use them at the ATM and online (if parents set the permission on their account to do so). It’s definitely worth looking into.
Teaching children about saving, earning money and budgeting is important, as is ensuring they understand the value of money. When children reach a suitable age many parents adopt a “you break it, you fix it” ethos.
“My son gets a weekly allowance, some he saves, some he spends. I supply him with his toiletries and clothing etc but I expect him to look after them. Last year he came home with a hole in his school trousers. They were ruined. As a mother of boys I expect this from time to time so reminded him to be careful and threw the ruined pair away. Three days later it happened again. I was sharper this time and gave him a ticking off, suggest if he was going to play certain games he should perhaps do them on the school field rather than the yard. The following week…same again. It turns out a large number of children in his year were playing a silly game on the school yard that involved rolling down a slope onto the tarmac one after another, hence the ripped knees. As this was carelessness rather than an accident, or wear and tear he was marched to the store to buy a new pair of school trousers out of his own money. It taught him a lesson and it’s one we subscribe to as a family. If you don’t look after things or lose things through carelessness after a certain age, you replace them yourself. It certainly teaches they the value of money when they see it disappearing from their account without anything fun to show for it. There were no more ripped school trousers after that!”
Teaching children about finances from an early age will help them greatly when they are older. It teaches them not only how to save up for what they want but also the value of money, the importance of looking after your money and how to manage / use various bank accounts and their features.
Do you have any top tips for teaching children about finances? We’d love to hear if you do so feel free to comment below.