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Teaching your children money skills

Mother and child with piggy bank

By age 3, your children can grasp basic money concepts. By age 7, many of their money habits are already set*. - It’s important we give children the tools to manage and understand money & teach them the value of a pound as early as possible to set them up for success.

We’ve put together a short guide to give you some ideas for teaching your children depending on their age.

Ages 3 – 4

You can start teaching pre-schoolers about money as soon as they can start to talk and ask questions.

  • You need money to buy things
  • You earn money by working
  • You may have to wait before you can buy something you want or need
  • There is a difference between things you want and things you need

How can you help your child to learn?

It’s important to teach your children how money works by explaining it in words they’ll understand. You could use toys and games to teach them. They should know the difference between coins and different types of money.

Encourage them to use a small amount of pocket money to buy things they may want this will help start setting expectations. Encourage them to save for a larger item by putting a small amount of their pocket money away each week and watching their savings grow.

Ages 5 – 8

As they develop a deeper understanding of numbers

  • You need to make choices about how to spend money
  • It’s good to shop around and compare prices before you buy
  • It can be dangerous to share personal or financial information online
  • Putting your money in a savings account will protect it and may pay you interest
    How can you help your child to learn?

Start giving them an allowance, they could earn their allowance by doing basic household chores. You can also encourage them to take on extra chores to earn a little more, this will help them to make the association of making a choice.
You can get your children involved in the weekly shops and ask them to find the cheaper products on the shopping list. This is also a good time to get them to understand running costs of a home, open conversations with your children will help them understand why they must sometimes wait for the things they want.

Start teaching them about how bank accounts work. What it means to use a debit card, how money gets onto this debit card and how interest works. You can do this by asking your child to put a small amount of their allowance in their piggy bank, you could offer to match what they save. Seeing this in action will help your child understand how compound interest works.

Ages 9 – 12

  • You should save at least 10% of your pocket money
  • Entering your personal details online is risky (credit card information, bank account details)
  • The sooner you start to save, the sooner you can reach your saving goals
  • The risks of using a credit card, you’ll be charged interest every month which will keep rising if you don’t pay it back

How can you help your child to learn?

Help your children open a savings account to teach them money management from an early age, their piggy bank will move to a real bank. Consider adding money into their savings account. If your children save a certain amount, you add in a certain amount. This will encourage your children to save more and to understand how savings and pensions work for the future.

Encourage them to save towards a goal for example a toy, a new bike, an electronic device and so on. There are also plenty of board games which you can use to teach your children how to manage finances. Some examples of these games are; Monopoly, PayDay, Charge Large, Cash Flow for Kids

Ages 13 – 16

  • Understand education costs, university fees and living costs
  • You should avoid using credit cards or loans for buying things you can’t afford
  • Your first payslip may seem smaller as some money may be taken out for taxes
  • If your child already has a savings account, consider introducing them to ISAs

How can you help your child to learn?

Expand your children's allowance to include more expensive items like clothes or gifts for friends. This will teach them money management. Introduce entrepreneurship, they should earn their own money by working a summer job or doing jobs for family, friends and neighbours. They should also take on more chores around the house as their pocket money is rising.

You could teach them a rule to follow around their pocket money, for example 50% of your pocket money goes to essentials, 30% goes to fun things you want, 20% goes into savings. This will show your children that it is ok to spend money if you know your limits.
Arrange for them to have a card, such as a pre-paid debit card, so they can start withdrawing money and understand managing their money via online banking. Banking apps aimed at children can also help you to work with your children to teach them about value of money as well as motivating them to work.

Ages 17 – 20

  • You should use a credit card only if you can pay it back in full each month, if you don’t this will have an impact on your credit rating
  • You will need to pay insurance for some goods like a car, or an expensive phone
  • It is important to have at least 3 to 6 months' worth of essential costs in your savings*
  • Different banks will offer different types of current and savings accounts, some are chargeable, your student account may not be the most cost efficient
  • Understand all the benefits your employer is providing you, as well as the salary

How can you help your child to learn?

Use budgeting tools to teach your children about how to manage their income vs expenses. They may have direct debit payments set up such a phone bill which they need to understand how to manage these and when to pay.
Your children may be starting full time work around this point, which is why it’s important to understand each job offer and the benefits package of the employer as well as the salary they will be getting.

For example; an employer may be offering them a lower salary but more holidays, a higher rate pension, share savings , health insurance and other benefits. When compared to another employer with a higher salary but less benefits the overall offering could be quite different. The salary shouldn’t always be the first thing your children consider when choosing prospective employment.

At this age the priorities of a 20 something may be holidays and life experiences, but setting a target for things like getting on the housing ladder can help them achieve their goals. Some maybe lucky enough to get help from Bank of Mum and Dad.