As parents, we want the best for our children. We’re probably not bothered whether they have the best car or the best clothes but we want them to be safe, secure and happy. Creating a strong financial education for kids is one of the best ways to do all that and more. But talking about money is one of the last taboos. How can we make sure we give our kids a good financial education that will see them right well into adulthood?
What do you remember about money from your childhood? Perhaps you opened a bank account through school? Or perhaps money was a bone of contention in your home, a reason for your parents to argue. Maybe money was something that was spoken about openly. Perhaps your parents taught you how to balance a chequebook (a now obsolete skill, admittedly). Maybe money was only mentioned in hushed, worried tones. However it was treated in your home life when you were growing up, you can guarantee that had an impact on how you feel about money now. Parents, carers and guardians have the most important influence on how children deal with money in adult life and teaching children about money from an early age helps them manage their own finances as they get older.
The question is, what do we need to be teaching our kids to make sure we’re giving them a strong financial education?
Start young and with the basics
First things first. Financial education for kids doesn’t have to be a big deal. These “lessons” can be small changes that introduce conversations about money to your kids in really informal ways but the earlier you start a child’s financial education, the better. Research shows that money habits and attitudes have already started forming by the age of seven, so it’s a good idea to start the work before then.
Even though we use cash less frequently these days (especially in this post-Covid life), it’s a good idea to introduce your kids to the idea of physical money as soon as they know not to stick pennies in their mouths. When you’re paying for stuff, you can explain what you’re doing and why. If you use a debit card, use receipts to show how much you’ve paid for the goods you’ve purchased, making the process of spending more “real”. Sometimes when we use a card to spend, it can be less tangible, but using receipts to demonstrate the reality can help. The more you do this, the more likely it is that the learnings will stick.
Conversations about wants vs needs are a great way to help kids understand that “money doesn’t grow on trees” too. Explaining that sometimes we have to prioritise spending to cover essential needs, rather than the “nice-to-have” is useful to make money more of a real concept too. Applying this to our own wants vs needs can demonstrate that we’re not just doing it to make our kids miserable too.
Create opportunities to earn
Allowing kids to have money of their own gives them opportunities to learn how to use it. A key part of financial education for kids is allowing our children to make mistakes when it comes to spending. To do that, they’ve got to have their own money to begin with. Pocket money or an allowance can be a useful route to give kids access to their own finances, but it’s worth considering whether they should earn their own money.
Not only will giving kids small jobs or chores allow them to build up their confidence, but it will teach them that money has to be earned. We all value money that we earn differently to the money that we receive. There may be some tasks that your kids do without any financial reward because that’s part of being a family member, but you could consider adding financial reward to some tasks like mowing the lawn, washing the car, cleaning the bathroom, gardening or hoovering the house.
Principle 1: Smart spending
There are three commonly believed principles when it comes to money that it can be really useful to think about when you’re concentrating on financial education for kids. First up – smart spending. Smart spending is based on the idea that cheapest may not always be best. Sometimes it’s better to spend a bit more to get better quality. This can be a tricky concept to pass on to tiny humans and young adults but teaching our kids to shop around for the best deal, to research their options before buying and trying to nip impulse buying in the bud can all be good ways to instil concepts of smart spending.
When kids are older, it might be that they’re in a hurry to get the things they want. Impulse control is not a strength amongst young people, so identifying the decision making process (by encouraging them to slow down), evaluating the options available and analysing their decisions together can help manage any irrational buying.
Principle 2: Save, save, save
It’s a fairly dated reference but in 1977, Yorkshire woman Viv Nicholson won a small fortune on the pools. When asked what she was going to do with the money, she declared she was going to “spend, spend, spend!” She did that and frittered away her fortune in just four years. This is not advice we recommend giving your kids. Quite the opposite. It might be boring, but when it comes to giving your little ones a good financial education, it’s about teaching them to save, save, save. Sort of.
Saving is lifelong skill and a useful habit to cultivate in our kids. Having tangible ways to learn is useful too – so a piggy bank or savings jar can be a good way to show your kids that money saved adds up. Some families use a “spend” jar and a “save” jar to demonstrate the difference between the two. For older kids, a savings account and a current account work well to show the same point.
Principle 3: Value of giving
Sharing your money values is a really key part of financial education for kids and the second principle of money is the value of giving. If one of your values is donating some of what you earn to charity, you can instil this in your children from a really young age. As well as a savings jar or piggy bank, some families opt to have a “donations” or “giving” jar. You can help your kids figure out which charities or organisations they’d like to give to. This principle allows them to feel the invaluable impact of helping others at a young age and will be something they carry with them far into the future.
Model good behaviour
When you thought back to your own childhoods at the start of this article, it’s likely that you had a real reaction to those memories, good or bad. Just as important as the lessons we teach our kids are the ways we talk about money and family finances when they’re around us. If you’re obviously anxious about money at home, but have a habit of splurging on things you don’t need, you’re giving your kids mixed messages. It’s impossible to be perfect all the time, but thinking about the behaviours you’d like your kids to adopt and trying to emulate them is a great jumping off point. If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices. It’s the classic mantra of practicing what you preach.
Be age appropriate
Don’t know where to start when it comes to giving your kids age appropriate spending advice? Check out these resources: