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Money saving

Teaching children about money

Posted 16 January 2016

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It’s so important that we teach our children about the reality of money and how to make sound financial decisions. Have a look at our ideas on how to do this.

Teaching children about money is so important. As parents, you want to make sure you’re giving your kids the best advice possible, enabling them to understand the value of money and make smart financial decisions in the future. But as most adults know, it’s not always easy navigating what, at times, feels like a financial mine-field. With credit cards, loans, savings, overdrafts and interest rates going up and down, the financial landscape can be complicated, with plenty of room for error. So how do you begin to teach children to manage their money in today’s world?

We’ve put together a blog for the parents out there who have kids that are approaching the age when they need to start thinking about how money works. Hopefully, our tips and ideas will empower you to pass on great financial advice, which your kids can understand and take on board, paving the way for a secure financial future.

Obviously these lessons will only work with children over a certain age! But, once your child starts to understand money, make sure you get going with teaching them these valuable lessons.

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Pocket money… with a purpose

Maybe you’re already giving your child pocket money, but there could be a way to change the way you do it so that you turn it into a lesson.

What about making them responsible for buying something that they regularly need? Pens and pencils for school perhaps? Or maybe something connected to a hobby that they enjoy? Or maybe they should buy a friend’s birthday present themselves? Whatever it is you make your child responsible for, it should be relatively small and cheap (so it’s not an overwhelming purchase) and something that they genuinely want to buy, or can see a need for, so they have a motivation for spending the money.

By giving your child money, but also making them responsible for buying something small, you’re teaching them about income and expenditure. In reality, money doesn’t just accumulate easily, and in the future they will be forced to spend some of it, while making choices about what they spend it on.

How to live on a budget

One of the best lessons you can teach children about money is how to live on a budget, and Osper might be one way to do this, as children get to feel what it’s like to have and use their own account. Children generally love anything that makes them feel grown-up and what could make them feel more grown-up than having their very own account and card to go with it – with some restrictions, of course.

As the parent, you can see the activity on an Osper account and also set their allowance – how much they can spend. Giving your kids a set allowance is a great way of getting them used to the idea of living on a budget and spending carefully.

It’s also a good way of making sure that your children have access to enough money if they’re in a situation where they might need it and they’re away from you, for instance, if they’re staying somewhere with relatives or out with friends.

The account comes with a debit card, which they can use as normal to purchase things or at a cashpoint to withdraw money – never being able to withdraw more than the allowance that you set. 

Saving is always a good idea

As long as your child understands what money is and how it works, it really is never too early to teach them about the power of saving.

The first time you introduce this lesson it might be more effective if they can actually see the money mounting up. So get an old jam jar and encourage them to add something to it every week. Make it more purposeful by getting them to save towards something specific. Perhaps as they get older they can save a little in the jam jar then add it to their proper savings account.

If Osper doesn’t sound like your thing, (maybe you don’t trust your child not to lose their card every five minutes!) there are lots of more traditional children’s savings accounts on the market that could work for your family. Once your child turns seven, you will be able to set up an account in their name. JISAs were set up in November 2011 and let you invest up to £4,080 over the tax year for your child’s future.

The good news is that the money you deposit in a JISA will be tax free, as long as you don’t go over the limit, and the interest rates on these types of accounts are normally a little higher – you can use MoneySuperMarket to compare what’s out there. When your child turns eighteen, their account will automatically become an adult one and control will be handed over to them. Hopefully, by this point, they will have had time to appreciate how the money that has built up over time can benefit them and that saving is always a good idea.

Money makes money

Another lesson that they will need to learn is the reality of borrowing money and what it’s like to have to pay something back with interest.

When they turn eighteen they will be contacted by financial firms announcing that they’re now eligible for loans and credit cards. If they’re not prepared with the knowledge they need they could find themselves making poor financial decisions that they struggle to cope with in the future.

So, if you have older children it’s a good idea to introduce them to the idea of interest – this will teach them that money makes money. If they have a little something to put in their savings, that money will earn interest over a period of time making them more. But if a lender has money and they borrow, then they will pay the interest – that money will make more money for the lender.  

Of course borrowing is sometimes necessary and sensible in life, particularly if you want to own a house! So it’s not a case of warning your children never to borrow, but rather teaching them to be aware of what that borrowing will cost them in reality and whether it’s necessary in the first place.

What do you think of our tips? If you have any other pearls of wisdom or ways that you teach your children the importance of money make sure you let us know about them on our Facebook page.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.