13 – 17 June was My Money Week – England’s leading financial education initiative for children and young people.
This national activity week takes place in primary and secondary schools and helps children and young people to gain vital skills, knowledge, and confidence in money matters.
When it comes to their finances, it’s clear we have a long way to go to educate the next generation. According to research published by Money Age, around 9 in 10 (87%) of people between the ages of 11 and 18 in the UK have “limited knowledge” about money management.
So, in the spirit of My Money Week, here are 10 practical money lessons you can teach your children and grandchildren.
1. The meaning and importance of responsibility
When teaching a child about money, it can be tempting to become controlling. So, rather than telling them what they should and shouldn’t do with their money, allow them to make their own choices as this will help them learn about responsibility.
Choosing between a range of options or coming up with their own – depending on their age – will not only teach them financial responsibility but will also empower them and give them the confidence to make sound financial decisions in the future.
2. The value of saving
It’s never too early for a child to learn the value of saving.
As much as many of us like to buy gifts for our children, if they always receive what they want immediately then they could grow into an adult who overspends or who gets into debt because of their buying habits.
Encouraging a child to save up for something they want teaches them the value of saving and also empowers them to have more expensive items if they plan properly and are determined to save over time.
3. Earn before you spend
As adults, most of us understand that money must be earned. However, for children who have been given money without anything asked in return, they may not automatically understand the concept.
Learning that money is earned will help children to appreciate the value of money. They will also begin to foster a work ethic and, as with many of these lessons, it could help them grow in confidence.
You can teach a child that money is earned by asking them to complete tasks around the house to earn their pocket money. Or, if the child is older, you could encourage them to get a weekend job. Earning their money rather than having it given to them can help a child to feel empowered, understanding that they can have what they want if they’re prepared to dedicate themselves.
4. Budgeting is crucial
Discuss budgeting with your children. Encouraging them to commit to a regular payment – such as a magazine, or food for their pet – with their pocket money each month will allow them to learn about monthly commitments.
They will become used to knowing how much money is going out each month and budgeting with the remainder to buy other things they’d like.
5. How debt works
Debt is something that most of us experience in our lives. Having a good working knowledge of “good” and “bad” debt as a child will likely help them to make sound financial decisions when they are an adult.
Explain how a mortgage works and how a house purchase could potentially increase a person’s net worth, versus a credit card debt caused by overspending on clothes that almost certainly won’t increase their net worth and could mean them paying high interest charges each month.
6. How to manage a bank account
When your child is old enough, help them to open a bank account.
Banks offer all sorts of incentives for children opening accounts, so encourage your child to look carefully at all of these and choose which bank they’d like to go with.
Once the account is set up, help them get used to managing it. Show them how to check the balance and to do this regularly. Over time, they’ll get used to knowing their financial situation – probably daily – and can make good money-related decisions.
7. Virtual money is real money
We’ve all been there – for many people, when they start spending online and using payment apps, it’s easy to disassociate the transactions from involving real money.
Understanding that these payment methods still require real money is vital. If your child wants to purchase something online, such as a gaming pack, allow them to do so by linking their own bank account. This way, when they check their bank balance, they will see clearly how quickly these purchases can add up.
8. How to invest
For older children, a lesson in investing could help set them up with knowledge and confidence to invest sensibly when they’re adults.
A child or young person can open a Junior ISA (JISA). In the 2022/23 tax year, they (or you) can pay in as much as £9,000, and your child can only withdraw or move the money once they reach age 18.
If you choose a Stocks and Shares JISA, it can familiarise your child with long-term investing and encourage them to take an interest in how stock markets work.
9. Compound returns can work for or against you
Compounding can be a tricky concept to understand, but for older children, it’s important that they learn how it works.
While compounding can help increase the growth of an investment, it can lead to spiralling debts. Children who understand the principles of compound returns could make more solid financial decisions when they are adults.
10. The value of professional advice
If you have a financial planner, talk to your child about why you choose to work with a professional to plan your money.
If appropriate, you could even take your child with you to an appointment with your planner, or let them listen in on a video call.
Your child will not only become used to the topics you speak about and the terminology you use, but will also start to understand the importance of professional advice in making good financial decisions.
Get in touch
To discuss your financial situation and plans for the future, please email firstname.lastname@example.org or call 0115 933 8433.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.