From saving to investing: teaching children about money and the basics of personal finance

From an early age, kids learn about money by observing how we spend it and how they manage their pocket money. That’s why teaching children about money is crucial to developing good spending habits.

According to research by the Money and Pensions Service, only 44% of 11 to 17 year olds feel confident managing their money. With the cost of living crisis continuing, arguably it’s more important than ever to give children the tools to navigate personal finance. As parents and carers, we hold the key to shaping our children’s financial habits. Having conversations about finances and showing children how we earn, save, and spend will equip them with the knowledge and skills to be able to manage their money effectively - and the sooner you start, the better.

With the help of pension experts PensionBee, we’ve explored what we should be teaching children about personal finance. Discover how you can make learning about money fun and engaging, while equipping your kids with the knowledge they need.

Do children learn about money at school?

Financial education is only taught as part of the secondary national curriculum in England, while in Wales, Scotland and Northern Ireland it is also taught in primary.

Research shows that money habits are usually set by the ages of seven and nine, so by the time students in England start secondary school, it may already be too late. Only four in ten children say they were taught about money and finance in school and research shows that those children who did were more likely to have regular savings and be confident managing money.

Whether it’s looking for the best bank account, pension or insurance policy, finances can be overwhelming at times. In fact, 47% of adults say they don’t feel confident making decisions about financial products. By teaching children financial literacy, this could help prevent them from facing financial hardships throughout their lives.

Teach them the basics of finances

1. Earnings

Unless we show children where money comes from, how can they understand the value of it? Teach children from a young age that you have to work to create money and that is how you afford to pay for essentials like food, council tax, household bills and mortgage or rent.

Let them see you paying the bills so they understand that this needs to be done regularly. If you’ve started giving your children pocket money, get them to earn it by doing chores around the house, such as helping with the washing up, tidying their room and putting their clothes away - this teaches them that money doesn’t come free in life.

2. Savings

In the UK, it is estimated that 10.7 million adults rarely or never save. While this may be due to low incomes, teaching people to think about long term goals could help make savings more achievable.

Teach children that saving money helps them to achieve their goals, whether it’s saving to buy a cinema ticket or buying a toy they really want. By putting a little bit of money away until they have enough to pay for it, they’re learning about saving for their own future.

This can be a really positive learning experience for them as they get a sense of achievement and accomplishment from paying for it themselves, too.

3. Budgeting

A big part of learning how to manage your money is knowing how to spend it wisely. Give a child £1 and the chances are they will want to go straight to the shop and spend it - but that often means they buy things they don’t really need or want.

Children can be impulsive but teaching them to spend in moderation when they are younger will help them to learn a valuable lesson about how to budget properly. Get children to look at their purchases - what could you cut costs on and what items are worth investing in? For example, clothes can be bought cheaper, whereas an item they will have for a long time or get plenty of use out of, such as a games console, are worth spending more money on.

You can get debit cards for kids, like Rooster Money, Starling Kite or Go Henry, which gives parents control limits but helps teach kids skills like accountability and budgeting as they can see how their spending affects their bank balance.

4. Investing

One way to increase your savings is to invest your money, but this can be confusing, even for adults. Don’t worry, though - you can still teach your children about investing and learn together!

Simply put, investing is like saving, but with more risk. By investing your money, you have the potential to earn higher returns, but there’s also a chance of losing some or all of your initial investment.

Introduce your children to different types of investments, like bonds and stocks, which give you a small ownership of a company. If you have investments yourself, show them how your investments have performed over the years. You can even let them choose a stock to invest in with their savings, and watch it go up and down together. And if you’re looking for a fun way of teaching them about investments, break out the board game Monopoly!

How to make learning about money fun and engaging

1. Play shop

Children are natural learners, and incorporating money into their games is a great way to introduce them to the value of coins and notes.

Start by counting coins and notes together, and play counting games to make it more fun. You can even set up a pretend shop with items from around the house, complete with price tags so they can learn how much things are worth.

Playing shopkeeper and customer together can help your child understand the concept of buying and selling. You can take turns being the shopkeeper and the customer, and even set a budget for them, like 50p, so they can learn how to budget and make purchasing decisions.

2. Give them responsibility

For children who are a bit older, help them learn about personal finances by encouraging them to be more independent with their money. If they get money for their birthday or pocket money, give them a piggy bank so they can save their money and regularly count it.

Introduce the idea of saving for something you want and get them to gradually take responsibility for their own spending and saving. When you’re on a day out, give them some money for the day and get them to pay for things like snacks or activities.

3. Lead by example

Get your child involved in everyday decisions so they understand the costs. When you’re out shopping, ask them to help you choose items, such as cereal, explaining why you might buy the supermarket’s own brand over a better-known brand.

You could also get them involved with meal planning, helping them understand the cost of food and how much you spend on it every week. They could even get involved in cooking to make it even more fun.

4. Promote independence

If you have a teenager at home, you’ll know how expensive life can be! The things they want are more expensive and they have bigger aspirations. This is a great time to encourage independence with money.

Encourage them to earn their own money (get them to do chores around the house or if they’re old enough, get a weekend job) and talk to them about what they want to spend it on.

Show them how you budget for the week and month, and talk to them about things that you are saving for, whether it’s a holiday or something for the home.

Then help them budget their own money. This could be saving some for something bigger and keeping some money for other activities, like going to the cinema with friends. Taking ownership will give them a sense of pride, too.

About PensionBee

For far too long consumers have struggled to manage their retirement savings. Pensions are often complicated, presenting a significant obstacle for savers wanting to take control of their money. In addition, many of us have no idea what we have saved, or how our pension is being managed.

This is where PensionBee can help. Our technology platform is designed to make it easy for customers to combine their old pensions into one diversified online plan, so they can take the first step towards a happy retirement. We’ve created pension calculators and retirement forecasting tools to help our savers plan ahead, so they can build a clearer picture of what they should be contributing to meet their retirement goals. Then, when they reach the age of 55 (57 from 2028), we help our savers to make on-demand withdrawals.

Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.