How to talk to children about money

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The right financial education can make your children feel more confident about money so, when they are older, they have the knowledge and skills to meet their financial goals. Part one of a three part series, in this article we discuss how to talk to young children about money.

Often, managing your wealth effectively is about developing positive habits such as regular saving and living within your means. Fortunately, we can instil these habits in our children from a very young age.

Ultimately, having these conversations as a family can benefit all of you. Yet, many people shy away from talking about money and you may be unsure how to start the conversation.

You may assume that children do not need to learn about money until they reach their teenage years and become more independent. However, according to the Money Advice Service¹, children begin to form money habits by age seven.

So, if you can teach them some key lessons from a young age, they may be more likely to manage their money well when they are older. If good habits aren’t instilled early and they develop a poor relationship with money, it could be harder for them to meet long-term financial goals later in life.

Some of the key concepts you could teach them are:

Earning money

Start with the fundamentals. Explain to your child where money comes from and how it is earned. You could also pay them for small jobs around the house, like tidying their room, to instil the concept of working and earning money from a young age.

Average weekly pocket money by age²

AgeWeekly Pocket Money
4£3.21
5£3.24
6£3.65
7£4.19
8£4.44
9£4.77
10£5.40
11£6.34
12£8.25

Budgeting

Budgeting is another great concept to teach your child when they are young as it could help them live within their means when they grow up and start handling their own finances.

Giving them a small amount of pocket money each week and letting them decide how they spend it can be a practical way to get them into the habit of dividing their money and prioritising their spending.

Explain to them that you will only give them pocket money once a week, much like adults are typically paid once a month.

Then point out that they will need to make their pocket money last until the following week so they can continue buying things they want. For example, you could explain to them that if they spend all of their pocket money on sweets on the first day they receive it, they won’t be able to buy anything else for the rest of the week.

However, if they split the money throughout the week, they can treat themselves a few times before they are next ‘paid’.

Practical lessons like this can be powerful tools for instilling lifelong good habits.

Saving

The earlier we start saving, the easier it is to build an emergency fund and work towards larger financial goals like buying a home or saving for retirement. So, if you can teach your child the basics of saving now, it will stand them in good stead later.

Once your child grasps the concept of budgeting their money throughout the week, you can introduce the idea of saving. Setting a goal is a good start, so perhaps ask them if there is a specific toy that they want to save up for.

Then you can work together with them to see how much it costs and calculate how long it would take them to save up if they put a portion of their pocket money aside each week.

You could also consider opening a savings account in their name and contributing to it. This may be a good opportunity to teach them about interest on savings, too.

Basic purchases

Finally, you may need to teach them about the basics of making purchases. If you take them shopping with you, they can learn about paying with cash or card. They can also see how you apply your budget and manage your spending.

3 tips for money conversations with children

  • Make it fun
  • Stick to basic concepts
  • Encourage questions

Talking to your children about money is one of the best ways you can support them in building their own financial plan.

Your initial conversations when they are young help them develop positive financial habits by teaching them simple concepts about earning money, budgeting, and saving.

If you need more advice about any of the topics covered in this guide, and how to help your children at each stage of their life, please get in touch with your financial planner.

¹ New study confirms adult money habits are set by the age of seven years old The Money Advice Service.
² Average value of pocket money per week in the United Kingdom (UK) as of 2021, by age Statista.

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Sources: Your Guide to Talking About Money

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