According to a survey by M&G Investments, 83% of parents recognise the value of teaching their children about money, but one in six don’t feel confident enough to do it. Surprisingly, more than one in every four parents think children should take responsibility for understanding money themselves. Moreover, there’s a common belief amongst parents that their children are too young to discuss finances, however, research from University of Cambridge revealed that children's financial habits are formed from the age of seven.
While these stats demonstrate that it can be difficult to talk to kids about money, it’s important to do so. While it's not something we may have come across in a new dad book, it’s best to teach kids about money as soon as they learn to count. When it comes to instilling good habits it is best to get an early start and a good grasp of personal finance ensures that children will be capable of handling their money rather than allowing their money to handle them. This behaviour – whether it ends up being positive or negative – is likely to influence their financial decisions when they’re adults too.
So what’s the best way to go about it? Break the barriers and preconceived notions by educating young children about spending habits, creating a sense of financial teamwork and differentiating between needs and wants. Shane Clifford, Co-Founder and CEO of household bill management app, WonderBill expands further, with his top tips on how to establish healthy financial habits in children.
1. Set a great example
During the early years, children pick up habits and behaviours from their parents and other significant adults in their lives. One way to teach children is to lead by example; good personal finance begins at home. After all, children trust their parents to be responsible and manage their finances.
Parents should empower themselves to effectively manage their family’s finances by setting a budget, tracking down vouchers and using bill management apps. This will leave a positive impression on their children by showing them that personal finance management doesn’t have to be stressful or a chore - instilling positive, healthy habits from an early age.
2. Show them the money
The modern world’s currency of flashy, plastic debit/credit cards combined with online shopping can confuse the value of money in a child’s mind. It’s important to show notes and coins to children to make the concept tangible and clarify the question ‘where does money come from’.
Take some time out to explain that money doesn’t grow on trees, is earned and comes out of a personal bank account – whether it be in store, online or from an ATM machine.
3. Give an allowance
Instead of a weekly allowance, consider giving your child a monthly allowance and sitting down with them to analyze and budget their finances. If preferred, set up a rewards system to encourage your child to earn money doing tasks such as helping walk the dog or tidying their room, for example. This will teach them the value of hard-earned money.
When it comes to spending, make it a point to help them differentiate between their ‘wants’ and needs’ as this will help them prioritize and make better personal choices. It’ll make them think twice before buying the latest action figure from the toy catalogue versus saving up for that shiny new bike.
4. Help with decisions
What will the allowance be spent on? Every child has a wish list and once they’ve saved up enough to buy the desired item, help them shop around before making a final decision.
Scout around various online shops, compare prices and help look for the best bargains. If done with enough guidance initially, it’s likely the child will start replicating this activity independently.
5. Save for the future
Open a savings account under your child’s name and encourage them to contribute a small amount each week. At the end of each month, show them the monthly bank statement.
This demonstrates the impact of long-term saving and can motivate them to save more from their pocket money and be wary on what they’re spending on. Alternatively, stick to a more ‘traditional’ route by using a piggy bank – it does the same trick!
6. Practice what you preach
Involve your child in the weekly supermarket run and guide them through the shopping list. Give them a total budget and advise them on how to choose the best products for their value.
Once they’re comfortable, give them the shopping list and let them entirely take charge with your support in the background. Not only does this teach children a good life skill, but helps keep the kids entertained in the supermarket!
7. Keep them in the loop
Children are observant, so don’t leave them in the dark when it comes to your household bills. Let them know how much you spend as a family on electricity, gas and internet.
It will make them more aware of those everyday household costs, how turning up the heat makes energy bills increase, and lots of baths make the water bill higher.