Here's a great article from the Observer, first published back in 2014, but still a very worthwhile read
Written by Kara Gammell
Mon 10 Nov 2014 06.59 GMT Last modified on Sat 2 Dec 2017 06.29 GMT
With research showing that children copy their
parents’ approach to finances, we look at how to pass on good money skills
Children’s education about finances can begin as soon as they learn to
count. Photograph: Alamy
The
parents of a child who has begged for the latest Lego spaceship, or merchandise
from Disney’s Frozen film, probably won’t have uttered the words “delayed
gratification” in their response. However, such terms could become a valuable
tool in teaching children about money.
Most parents excel
when it comes to teaching safety and good manners, but with money few know
where to start. Money skills can be a blind spot because so many feel
financially inept themselves. Yet research suggests parents’ behaviour is the
biggest influence.
“As a society in
Britain, we don’t talk about money – it’s a sort of massive taboo,” says
clinical psychologist Dr Elizabeth Kilbey. “Unlike other parts of parenthood,
there is no playground chatter about the topic and, as a result, parents revert
to what they know – passing their habits down to children.”
So how do you teach
your children to be financially astute and, eventually, independent?
Lesson 1 Start early
Teach them well –
and early – says the government-backed Money Advice Service. Its research
suggests that adult money habits are set by the age of seven. But financial
lessons must be age appropriate to resonate, says Kilbey: “Young children are
not miniature adults. Lessons should be tailored for their age, rather than
just made simpler.”
Start as soon as
they are able to count and make money the topic of regular family discussions.
Time these around dates when they are due to receive a cash gift so that you
can talk about saving versus spending.
Lesson 2 Want versus need
While your child
will naturally ask for the latest games console, making them understand the
difference between needs and wants will help them make sensible spending
decisions from a very young age.
One way to do this
is to put it into a context that your child can understand, says Kilbey. “If
they want the latest Star Wars Lego set that costs nearly £300, explain how
long it would take an adult to earn that amount of money.”
She suggests
creating a specific example to put it into perspective. How many hours would a
teacher, for instance, have to work to pay for that item? “This demonstrates
delayed gratification which is an important part of learning about money.”
Parents should
reinforce through words and actions that it’s important not to spend more money
than you have. One good way is to keep the just-for-fun purchases in check by
not giving in to every request.
“It is OK to say
no,” says Kilbey. “As adults we are often told no, whether it is from employers
or the bank, and children need to hear it.”
However, experts
warn against saying you can’t afford it. It’s easy to use this default response
when your child begs you for the latest toy. But doing so sends the message
that you’re not in control of your money, which can be scary – and create
future anxieties.
Kilbey suggest that
a more appropriate way is to say: “We choose not to spend our money like that.”
Separate money into different piles.
Photograph: Alamy
Lesson 3 Know the difference
It is crucial you
show your children that money can play a variety of roles in their daily
living, whether it is spending today, or saving for tomorrow.
Providing pocket
money in lower denominations makes it easier to allocate a proportion of income
to different goals.
Labelled jars work
to separate money – one for saving, one for spending, and one for donating. Any
time they make money by doing chores or receiving birthday gifts, encourage
your child to divide the cash equally among their jars. It’s not a huge act, but
it does show that it’s OK to spend some, money, as long as you’re giving back
to others and saving as well.
Once they’re older,
their bank accounts can mirror the split.
Lesson 4 Learn from mistakes
When kids have
their own money, it is essential that they make choices and deal with the
consequences of their actions. By experiencing negative consequences first
hand, they will learn to make smarter financial decisions.
“Let them take
responsibility for small amounts,” says Kilbey. “Allow them to make mistakes.
It really is the best way to learn.”
Lesson 5 Make it relevant
Enable children to
experience using money on a practical level to experience the emotional highs
and lows.
“First, they must
save it, then spend it, then experience the euphoria that comes from buying the
item they wanted, but also what it feels like to lose some money in the
process. This will reinforce the idea that it must then be saved again.”
One way to teach children how
to handle money is through routine tasks and household chores. Use the weekly
food shop to talk about planning, saving and finding the best value. Let your
children hold the list and tick off each item or, if they’re older, give them a
few items from the list to find on their own at the best price.”
Using actual cash
is important. “It’s only once they have grasped ‘real’ money can you move on to
the more difficult concept of virtual or digital money,” Kilbey explains.
When your children
are very young, work money concepts into their imaginary games, such as playing
pretend store or restaurant. However, Kilbey suggests avoiding play money:
“Parents should role play with real money and model the importance of giving it
the care and attention it deserves.
“Store it properly
at the end of the game, as it will show that it needs to be looked after.”
Lesson 6 Lead by example
Parents have a
great deal of influence on their children, and it is not just the positive
messages that resonate. Children tend to copy what we do rather than what we
say, so limit the amount of shopping trips as a leisure activity, as they might
start to think that money is an unlimited resource and that spending is fun.
What’s more,
research suggests that a third of parents lie about money. Studies show this
will only send the wrong message. They may learn that lying is a good way to
cover up financial problems, or that lying about money is acceptable. If your
child asks a financial question that you’re not comfortable answering, be
honest and say you don’t want to talk about it.
STARTING POINT
If you are a parent
who won’t hand over any cash until your offspring have earned it, you are in
the majority.
Halifax research
has found that around two thirds (65%) of children aged between eight and 15
are doing some form of household chores to earn their pocket money.
So when do you
start paying? Dr Elizabeth Kilbey suggests a weekly amount during infant school
then spaced out to fortnightly or monthly by the time they are finishing
secondary school.
“There has to be
some sense of the real world, and pocket money is a good way to do that as it
teaches short- and long-term saving and good spending habits,” she says.
The average weekly
amount given to children between the ages of eight and 15 is £6.35, according
to Halifax.
Necessity Account (NEC - 55%):
Play Account (PLY - 10%):
Financial Freedom Account (FFA - 10%):
Education Account (EDU - 10%):
Long-term saving for spending 
