How to teach your children about money

Brush those teeth twice a day, eat loads of fruit and veg – and never run out into the road.

Parents do their best to pass on all sorts of vital life lessons to set their kids up for a sound start in life. Yet how about one on being good with money?

It’s not easy to talk about the importance of cash when we pay for so much digitally with smartphones or contactless cards. And it’s no surprise the secrets of long-term saving hold little interest (pun intended!) for youngsters more used to instant fun on screens with friends.

However, kids will always pay attention to money when it suits them – trip to the toy shop, anyone? The trick is to find a fun way to engage them at every opportunity.

Whether you’re a parent, grandparent or guardian, you can help the young people in your life develop good financial habits from an early age.

Here’s a dozen of the best tips and tricks to start you off – and once you see what works best, you can make up plenty of your own.

1. Turn quizmaster to set a money test (don’t forget treats for prizes)

Try a simple test on younger children to see if they can get to grips with money basics – and choose questions that encourage them to see how money works in their world. Ask which coin is the heaviest? Buys the most sweets? Stands out as the shiniest (you decide the winner for this one)? How much is a box of their favourite breakfast cereal or a pint of milk? Whose picture is on every coin and note? What is a bank? How else can we pay for things rather than using cash?

The answers to all these will usually trigger many more curious queries from inquisitive minds, so can be a brilliant way to kick off a conversation about money.

2. Give a reward for ‘earning and learning’

Introduce the idea of a cash reward for helping you around the home. Making the link between achievement and financial reward can go a long way towards helping kids appreciate the merit of earning money. You could even set up a rising ‘bonus pay’ scale where messy jobs – cleaning the car and recycling bins, say, or mowing the lawn – could give the most. You can decide an appropriate reward and make all, or just part, of their pocket money dependant on the chores’ completion.

3. Introduce the idea of a pocket money ‘budget’

Ask your child to pick out their favourite goodies to spend pocket money on – and help them to understand the cost of each. See if they can work out how many they could buy with their cash every week/month, and what it might mean if they didn’t spend it all each time. Then encourage them to think of at least one thing they’d need to save up for over a few weeks or months, and help them plan for that in a budget. One canny way to do this is to…

4. Set up savings jars

Use old glass jars or plastic containers as a quick and easy way for children to watch their savings grow. You could even suggest they decorate each one creatively, to represent what they’re saving for. For example, try gluing gift wrapping paper around the container for a major present, or sea shells if they’re saving for a holiday or trip to the beach.

5. Hand over the reins for a big day out

Pick an event or trip your child is looking forward to, and explain that they’ll be in charge of whatever is spent. Agree a total sum for the day and ask them to plan what they’d like to use it on. Offer tips on what they need to include – petrol costs, train or bus fares, entry tickets, bills for food and drink etc. On the day itself, help them lead the way as much as possible and – where practical – to make payments by holding up cards or handing over cash themselves.

6. Spend a day paying only with cash

Youngsters can get a real feel for the relationship between money and goods by spending a whole day using only cash. A simple trip to buy small items in a supermarket or newsagent lets them prepare the money, hand it over to shop assistants and receive – and check! – their change. Depending on where you live, they could also put coins in parking meters, pay for treats from ice-cream vans or slot them into sweet machines and electronic kids’ rides.

7. Show them how you spend your money

Pop open your laptop or pick up a pen and paper to show them how you manage your money – and what you spend it on. There’s no need to reveal your entire household finances if you don’t think that’s appropriate. But do use a big starting sum to let them see the how the figure falls as you tick off all the household expenses. Get them to either use a calculator or – if their maths is up to scratch – do the sums themselves as they deduct the cost of each item on the list.

8. Start a simple fundraiser

A money-raising scheme, like selling cupcakes for charity, can help children to learn some basic money management skills. Give them responsibility for doing some simple accounts e.g. keep a list of who owes or has paid, and a running total of how much money has been raised.

9. Challenge them to save on the shopping

Set a shopping list with a target budget (maybe a little higher than you’d normally pay) and challenge your children to find ways to save money while in store with you. If they need some clues, suggest buying supermarket-own brand items instead of big brands, multipacks, looking out for special offers and perhaps even sacrificing a luxury item.

10. Share your everyday banking tasks

If you've older children who’ve already expressed interest in money and how it works, ask if they’d like to help you sort out some of your regular banking. This could include checking standing order and Direct Debit payments on a statement, or in your online banking service. Due to make a payment or transfer? Let them watch and ask questions – you can be sure one will be ‘how did the money get there so quickly?’.

It’s up to you to decide what’s appropriate, of course, but it could help to show them how some basic banking technology works. Just make sure you never accidentally let them see your log-in or password details, to protect your security.

11. Explain how borrowing works

As your children turn into teens, they’ll usually begin to ask you for more money – which can be a perfect point to explain about borrowing. Start with the basic principles, that you shouldn’t borrow money unless you know how and when you can pay it back. You could also explain that banks and similar companies offer to lend people money, as long as they pay back a little extra so the lender makes a profit (which is called ‘interest’).

You could explore all the different ways to borrow, from a quick loan from a friend or relative, to short-term overdrafts and credit cards, to longer-term borrowing like personal loans and mortgages. And don’t forget to mention that paying back money later than promised can mean you have to pay extra to the lender as a penalty for not paying the full amount of interest they expected.

12. Open a bank account

Most children tend to jump at the idea of being in charge of their money, and the majority of banks now have accounts designed to get youngsters involved. Some provide a simple level of access online or through an app, and your child could even get their own pre-paid debit card (so they can never spend more than they have in the account). Whatever features you agree to choose together, a current account can help instil responsible habits which give them a leg-up when they start to build a credit history as adults.