Talking to your children about financial responsibility can be a difficult subject to approach casually. As a parent, you want to prepare your child to be independent in the future, and teaching them about saving/spending responsibly is an important part of this process. Before your child reaches the age of ten, there are certain things you can do to prepare them to take charge of their own finances and teach them about the importance of personal finance, which can impact their lives for years to come.
Give them a weekly/monthly allowance
Rather than buying your children the things they want when they ask, once they reach a certain age you can start giving them pocket money. Giving them an allowance gives them the opportunity to experience having responsibility over their own money and can teach them to spend it more sensibly. However, in order for this to work, you have to commit to the amount you give them and not give into demands for more. You might reward your child with additional pocket money if they were to achieve something particularly noteworthy or demonstrate exceptionally good behaviour, but without firmly setting an amount you might be giving them the message that they can always rely on you for more money if they need it.
Open a savings account
If your child is regularly receiving birthday or holiday money from relatives – or if they are gifted with large amounts of money – rather than allowing them to take charge of it, place it in a savings account opened in their name. Be sure to include your child in the process of opening and monitoring the account so they can see for themselves how saving money works and how much money they have to finance their future. Discuss with them when you’re opening the account what this money can be used for in the future, e.g. education, accommodation, holidays and vehicles. Opening a savings account from a young age also means that your child will have money to fall back on in the future should they find themselves in a financial emergency. While payday loans may be an option when facing unexpected expenses, many prefer to have savings accounts to fall back on when facing financial emergencies. Helping your child to understand the need for savings may give them an insight into a better personal financial future.
Get them a piggy bank
Having their own personal piggy bank is a great way for your child to learn about saving. As they add money to the piggy bank, they will be able to see the results of their saving for themselves in a tangible format. Be sure to give each of your children their own piggy bank so that they are firmly aware of how much money they personally own as opposed to a collective amount that they might share with their siblings. Unlike your child’s savings account, this money can be used freely. While children might be frivolous with their money to begin with, giving them full control will allow them to learn an important lesson about spending wisely. Failure and mistakes are an important part of the learning process, so it’s better that they make them when they’re younger rather than when they’re older and need to rely on their savings. If they spend all of the money in their piggy bank, you must allow them to experience the consequences and not give in to demands for compensation unless there is just reason for it.
Talk to them
Ultimately, one of the best ways to teach your children about personal finance is to discuss it with them and give them advice about saving and spending wisely as they get older. This conversation needn’t be a serious or intense discussion, but sitting down with them and talking them through the importance of saving money and being careful about the money they have might help them to make better financial decisions in the future. Let them know that they can always come to you for advice about money and direct them to sources of information that they might find useful when they start taking on more financial responsibility. Loans in particular are an important element of personal finance that you should discuss with your child, although you might not need to address this subject until they get a bit older. Tell them about the process of taking out a loan, what it entails, and the different types of loans that are available to them. You can use online and printed resources to affirm this information, and you can use our online Loan Calculator to show them how interest works. Your child should be learning to make more informed decisions when it comes to their personal finances and be more considerate of the consequences of them.
Generic advice is not a service regulated by the Financial Conduct Authority.