**This is a collaborative post**
AD | It’s never too soon to start making money a regular topic of conversation around kids. Culturally, talking about money is something of a taboo, and this naturally means we don’t teach kids about money’s value and importance. It’s not a conscious thing, it’s just a subject that doesn’t crop up.
The more children grow up recognising money, learning where it comes from, learning what it can buy and how to manage it themselves, the less likely they are to run into avoidable financial difficulties as adults.
It’s especially important these days, when so many transactions are done online or via automated card payments. Paying this way is convenient, but it creates a disconnect between acquiring stuff and having cash to pay for it. Pocket money apps can help kids start understanding the connection between plastic or digital and real money, so it might be worth investigating if you think this might help.
Give them regular pocket money and encourage them to save some of it rather than spending the lot. Put the savings in a jar or piggy bank so they can see it mounting up. When they’re spending, a useful activity is to talk about how they decide between one big item or lots of little ones.
Include games at home that revolve around money and pretend situations, such as playing shops or imaginary restaurants, rather than board games. With just a little play money, children learn budgeting and decision-making skills.
Show kids in this age group how to set goals so they can save for things they need or want. With more emphasis these days on slow fashion and making things last, saving for big purchases is a powerful way to help anyone decide if it’s something they really want rather than a fad of the moment.
You can also pay kids for helping round the house, so they learn a bit about earning money and organising their time. Draw up a list of chores and give each a monetary value so you can keep track of jobs done and ‘wages’ earned.
With older kids, you could encourage a bit of entrepreneurial business activity by helping them sell unwanted items through online auctions.
You can also introduce teens to the concept of paying interest on borrowed money or earning it on savings. Compound interest confuses lots of people, including grownups, but that’s because we’re not taught about it. One way to start understanding compound interest is to ask kids if they’d like £100 every day for a month or start on day 1 with a penny, then double the total every day for a month. Take their first answer, then help them work out how much they’d have at the end of the month to see if they want to change their minds. The difference between £100 and a penny is huge so most will choose the pounds. But seeing how it doubles every day is amazing, and helps with understanding how a small debt can quickly become overwhelming.
Here are some ideas for introducing older children to money management.
- Share your payslip – sounds radical, yes? But it’s a grand demonstration of how much we pay in tax, national insurance, pension schemes etc. It introduces the differences between gross and net figures.
- Talk about pensions – how early to start a pension fund, for instance. Play around with a compound interest calculator to see how relatively small amounts can mount up. Talk to a pensioner and ask them if they wish they had a bigger pension, how they manage their money, if they wish they’d been taught more about how money works.
- Help them understand debt – be more open about your own experiences with credit cards or even mortgage payments. This is another opportunity to talk about interest and how it means you pay back more than you borrow.
- Teach them about budgeting to make money go as far as possible.
- Talk about investing, maybe learn about the stock market together and do some dummy runs without parting with real money.
The earlier we can get kids interested in money and understanding how it works, the better equipped they’ll be to navigate the complicated world of finances. It could even lead them to consider a career in accounting or other aspects of finance that will give them sought-after skills and a good income for life.