Five tips to help your children develop good financial habits

Given how important financial skills are in navigating life, it is a surprise that children are not taught about money in school.

As a parent, there are a few simple things you can do to help give your children a head start when it comes to approaching finances.

1. Talk about it

As with any awkward conversation parents may need to have with their children, talking openly about money can help them to be better prepared in later life.

You could start by going through your bank statements, demonstrating where the biggest outgoings are and asking your children to help identify any areas where spending could be reduced.

By opening conversations early, children will have a better understanding of the value of money, which should come in useful when they are of an age when larger life expenses, such as university fees or buying a car, are on the agenda.

2. Teach the basics

Many young adults do not understand the fundamentals of credit and debt and the impact of how a poor credit rating can affect your finances further down the line. For example, you could explain to them that debit cards work on money that is yours. When you use the card, you are subtracting money from your own account. Credit cards, however, are essentially loans from a bank, often at extremely high interest rates that need to be paid back.

Many children who do not understand how credit works can face financial disaster when they first sign up for a card, particularly when living away from home for the first time.

3. The difference between a need and a want

Young children can benefit from an early age by understanding the difference between a need and a want.

If they decide it is a want, then you can encourage them to earn the money it takes to acquire it. You could boost their pocket money if they do chores around the home. The harder they work, the greater the rewards – and the sense of achievement. With younger children, quite often after a few days, they may find they no longer want it.

4. Set a savings goal

Following on from above, if your child is saving towards something they want – such as a new game or toy – ask them to calculate how much they will need to save each week or month, and for how long, to meet the cost. This could help build a valuable savings habit that will potentially build their future wealth.

5. Let children contribute financially

It is important that you do not pay for everything. While parents will always want to do the best by their children, people commonly confuse loving with giving.

The contributions do not have to substantial – you could suggest that your child might pay for their car insurance if you buy the car or a teenager who wants an expensive iPhone might pay for the data service portion of the bill.

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Sources: https://www.cnbc.com/2020/07/07/6-tips-to-teach-your-kids-lifelong-money-lessons-during-the-pandemic.html
https://www.brewin.co.uk/insights/tips-for-teaching-your-kids-financial-skills

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