Teaching children good money habits
It can be easy to think we don't need to worry young children with the grown-up realities of money, and that it's best to shield them from these adult responsibilities. But when it comes to developing money sense, the opposite is true.
Young children can begin to grasp the basics of handling money and learning about how it works. This provides the foundations for them to go on to have confidence and skills with money, so that as they become more independent, thinking about things like saving, earning and budgeting will be routine rather than a burden.
Here, Dr Elizabeth Kilbey, clinical child psychologist and parenting expert on BBC Three's House of Tiny Tearaways, shares her top ideas on how parents can engage their children on the topic of money from a young age.
Dr Kilbey says: "From my many years working with families I know it's very important for parents that their children inherit good money habits, so as not to make too many mistakes along the way. Well the good news is research shows that parents are the main influence in the development of their children's money habits."
Co-author of the study into children's habits, University of Cambridge behaviour expert Dr David Whitebread, says: "Early experiences provided by parents, caregivers and teachers which support children in learning how to plan ahead, being reflective in their thinking and being able to regulate their emotions, can make a huge difference in promoting beneficial financial behaviour".
So what are some good habits and lessons to teach your children, and when should you start?
Playing with coins
Young children can handle money and start to learn what all the different coins are. You can help them sort and match coins and look at them to see that they have different numbers or 'values' written on them. Get them to place coins in order according to value, not size.
Teach them to store money safely, so they don't lose it and they can understand that money is not a toy and needs to be kept safe. Children of this age can use money in a fun way and play shops with it, but the important message is that although the game is pretend, the money is real and it's the same money grown-ups use.
Money in the real world
As children get older, they can start to understand how money works in everyday life. Show your children how you use money, whether that's paying for things using cash or cards or even digital money. This starts with simply getting them to pay attention when you complete a transaction in a shop. Many children wander off at the supermarket checkout, ignoring the important part where the groceries get paid for. They need to understand that things aren't just given out for free.
Children can watch and learn about the process of paying for things, like how to interact with the person behind the till, when to hand over the money, how to wait for any change and check they have the right amount. These are all practical steps that they need to learn before they can confidently start to use money themselves.
Using money themselves
Once you're confident that they know what money is, what it is used for and how to use it, then it's time to start letting children use money for themselves. They can do this by paying for things in shops with an adult helping, or if older children have some money of their own (from pocket money, or birthday money) they can use it to buy something. The important thing is that they are able to practice making a purchase and get confident using money in their day to day lives.
Age 3 – 5: Handling money, putting coins in value order, making a money box/pot to keep money safe inside. Playing shops with real coins (1ps or 2ps) and learning to count out money and give change.
Age 5 – 8: Seeing money in real life – looking at prices of things in shops to see the cost of things, counting out money, watching parents pay for goods in shops, practice buying some sweets/comic/ food/drink in a shop.
Age 11 – 15: Starting to use money regularly. Having an electronic bus pass/oyster card or electronic dinner money card and keeping track of what they spend on it. Having a small budget for a trip out with friends, taking over buying own toiletries, paying mobile phone bill. Getting a bank account. Practice saving up for a desired item.
Age 16+: Feeling confident – learn to use digital money and manage money online. Explore ways to earn money for themselves. Be able to set a budget for the things that they need. Take more control of managing their own money for their personal items including travel, phone, clothes and leisure.
There comes a time when parents feel their child is ready to take on some of their own financial responsibility. This could be making them take charge of their mobile phone bill or giving them responsibility for something that you typically pay for – such as having a small budget for toiletries or travel money. As they get the hang of this you can extend it to clothes or leisure activities.
It could also be time to introduce ways that they can earn money and start them saving towards things that they want, rather than need. Children of senior school age are keen to keep up with their peers and this can put pressure on them and you. So you can help them make choices about what they want to spend their money on, which might be very different from what you would have chosen. At this stage children are able to start developing skills in using digital money and checking and managing their finances online, which is a vital life skill for young people today.
The financial life lessons to teach them
Being a parent can feel like a constant round of 'telling them things', from picking up their socks to brushing their teeth - most of which seems to fall on deaf ears! So when it comes to money, what are the key messages to get across?
When it's gone, it's gone
Children can easily think that money is endless and there will always be more available when they want it. So the lesson to learn is that they only have a certain amount and have to make choices - if they only have £1 to spend, they can't go over that limit. Once they've spent what they have, it's gone – and in its place they have whatever they've bought. This is the foundation for making money choices and learning to budget and so it's really important that parents feel empowered to say no.
Save, spend and save again
It's important children think ahead about how they are going to spend their money. They may want a specific item that they are going to have to save up for, which teaches them to work towards a goal. And once they have spent their money on that item it's time to start the cycle again. Children are not able to conceptualise 'saving for the future' and so unless they can see that saving for something has a purpose (to get something that you want) then they won't understand why this is important. You need to help reinforce the saving habit by making it a positive lesson in achieving what you want.
Conversations about money are an excellent way of teaching children about making choices. All children can relate to this, from what they chose to have for their school dinner to what clothes or games they may want. If they have understood the lessons above, then they are in a great place to understand that they can make choices about how to spend their limited resource and that they may have to wait to get some of the things they really want. The key is to help them to distinguish between what they want and what they need.
Money is earned
It's almost impossible to talk to children about money without giving them a sense of where it comes from. So explain to them how the family gets money and the time and effort that goes in to earning it. Every family will have their own views on whether children should have pocket money and how much to give, but if you are going to give it, then it's important to be clear with children when they are going to get it and whether they are required to do anything in return. Younger children will find small, regular amounts easier to manage, whereas older children can learn to plan, save and budget by being given their pocket money less frequently – such as fortnightly and then monthly.
Money can feel like a tricky subject, but hopefully these tips give you a good starting point to have conversations about money with your children. If you want to get started now, watch this video from the Money Advice Service about letting your children have a go with money.
This article is provided by the Money Advice Service. All information accurate at time of publication.
Last updated: 9 months ago