Five Ways to Teach Your Children about Money

18-Mar-2010

It has never been more important to ensure that kids have a great financial education.  Learning about money from a young age undoubtedly leads to better financial management and making better choices when the child is older.

Many people are discouraged from teaching their own children about money, feeling that it is a complicated subject best taught at school, or when they are a bit older.   However, there are a number of practical ways to demonstrate the use and value of money at home, without having to get technical.

Here are some tips for ways of teaching your children about money.  We've used a child of 7 as an example, although younger kids can also pick up the concept of using money once they have learned to count.  If you have any other tips, please share them at the end of the article!

1. Show and Tell

Sit down with your child and show them the different notes and coins, and explain what each of them is worth.  Invent some basic scenarios such as going to the shop to buy sweets, and ask them to work out which coins they would need to give the shopkeeper to buy different combinations of sweets.  Getting them thinking about the value of individual items is more valuable than simply giving them money to hand over at the counter.  

2. Give them Pocket Money and 'Piggy Bank' Money

If you've decided to give your child pocket money to buy sweets and toys each week, encourage them to set aside a small amount to put in a piggy bank (or a transparent container so they can see the coins build up) each week.  They will be able to see the value in not spending the full amount they are given when finally they can use the money they have saved to buy a toy they have been waiting for.

3.  Encourage them to Set Longer-Term Financial Goals

If there is something that your child is passionate about, such as getting a new pair of football boots, or perhaps learning to ride, get them involved in saving towards this goal.  Explain that they are going to be earning money towards their lessons or equipment, and how much you will pay them for doing certain tasks.  

These tasks can be household chores or keeping their room tidy or anything else that requires a certain amount of work and dedication.  Then, set up a bank account and pay their earnings in each week.  If you set up an online account, you can even monitor the savings with them and your child can see their goal getting closer.  This also gives you the opportunity to explain interest to them.

4. Beware of Teaching them 'Emotional Spending'

Try and avoid being within earshot of your child if you talk about impulse buys, or guilty spending.  Linking spending with feelings can negatively affect their financial management when they are older.  Instead, talk to them about things that you are saving up for, such as if you are making monthly payments towards a holiday.  

5.  Get your Child involved in the Household Shopping

Ask your child to help you plan the meals for a week.  Show them how much you have to spend for a week's food shopping and take them along to the supermarket with you.  Set the challenge of staying within the budget for the week (obviously for simplicity, it's best if this is a round number), and ask them to help with comparing brands for the best value, and buying the right amount of food for the week to avoid wastage.   

Always pay in cash for shopping when you take your child along with you, so that they can see actual money being spent.  Making spending decisions early on, and getting involved in the practical side of spending (rather than just buying sweets and toys) will give your child a more realistic attitude towards their own finances when they grow up.