T he parents of a child who has
begged for the latest Lego
spaceship, or merchandise from
Disney’s Frozen film, probably won’t
have uttered the words “delayed
gratification” in their response.
However, such terms could become a
valuable tool in teaching children about
money.
Most parents excel when it comes to
teaching safety and good manners, but
with money few know where to start.
Money skills can be a blind spot because
so many feel financially inept
themselves. Yet research suggests
parents’ behaviour is the biggest
influence.
“As a society in Britain, we don’t talk
about money – it’s a sort of massive
taboo,” says clinical psychologist Dr
Elizabeth Kilbey. “Unlike other parts of
parenthood, there is no playground
chatter about the topic and, as a result,
parents revert to what they know –
passing their habits down to children.”
So how do you teach your children to be
financially astute and, eventually,
independent?
Lesson 1 Start early
Teach them well – and early – says the
government-backed Money Advice
Service. Its research suggests that adult
money habits are set by the age of
seven. But financial lessons must be age
appropriate to resonate, says Kilbey:
“Young children are not miniature
adults. Lessons should be tailored for
their age, rather than just made
simpler.”
Start as soon as they are able to count
and make money the topic of regular
family discussions. Time these around
dates when they are due to receive a
cash gift so that you can talk about
saving versus spending.
Lesson 2 Want versus need
While your child will naturally ask for
the latest games console, making them
understand the difference between
needs and wants will help them make
sensible spending decisions from a very
young age.
One way to do this is to put it into a
context that your child can understand,
says Kilbey. “If they want the latest Star
Wars Lego set that costs nearly £300,
explain how long it would take an adult
to earn that amount of money.”
She suggests creating a specific example
to put it into perspective. How many
hours would a teacher, for instance,
have to work to pay for that item? “This
demonstrates delayed gratification which
is an important part of learning about
money.”
It is OK to say no. As adults
we are often told no, and
children need to hear it
Parents should reinforce through words
and actions that it’s important not to
spend more money than you have. One
good way is to keep the just-for-fun
purchases in check by not giving in to
every request.
“It is OK to say no,” says Kilbey. “As
adults we are often told no, whether it
is from employers or the bank, and
children need to hear it.”
However, experts warn against saying
you can’t afford it. It’s easy to use this
default response when your child begs
you for the latest toy. But doing so sends
the message that you’re not in control of
your money, which can be scary – and
create future anxieties.
Kilbey suggest that a more appropriate
way is to say: “We choose not to spend
our money like that.”
Lesson 3 Know the difference
It is crucial you show your children that
money can play a variety of roles in
their daily living, whether it is spending
today, or saving for tomorrow.
Providing pocket money in lower
denominations makes it easier to
allocate a proportion of income to
different goals.
Labelled jars work to separate money –
one for saving, one for spending, and
one for donating. Any time they make
money by doing chores or receiving
birthday gifts, encourage your child to
divide the cash equally among their
jars. It’s not a huge act, but it does
show that it’s OK to spend some, money,
as long as you’re giving back to others
and saving as well.
Once they’re older, their bank accounts
can mirror the split.
Lesson 4 Learn from mistakes
When kids have their own money, it is
essential that they make choices and
deal with the consequences of their
actions. By experiencing negative
consequences first hand, they will learn
to make smarter financial decisions.
“Let them take responsibility for small
amounts,” says Kilbey. “Allow them to
make mistakes. It really is the best way
to learn.”
Lesson 5 Make it relevant
Enable children to experience using
money on a practical level to experience
the emotional highs and lows.
“First, they must save it, then spend it,
then experience the euphoria that comes
from buying the item they wanted, but
also what it feels like to lose some
money in the process. This will reinforce
the idea that it must then be saved
again.”
Use the weekly food shop to
talk about planning, saving
and finding the best value
One way to teach children how to
handle money is through routine tasks
and household chores. Use the weekly
food shop to talk about planning, saving
and finding the best value. Let your
children hold the list and tick off each
item or, if they’re older, give them a few
items from the list to find on their own
at the best price.”
Using actual cash is important. “It’s only
once they have grasped ‘real’ money can
you move on to the more difficult
concept of virtual or digital money,”
Kilbey explains.
When your children are very young,
work money concepts into their
imaginary games, such as playing
pretend store or restaurant. However,
Kilbey suggests avoiding play money:
“Parents should role play with real
money and model the importance of
giving it the care and attention it
deserves.
“Store it properly at the end of the
game, as it will show that it needs to be
looked after.”
Lesson 6 Lead by example
Parents have a great deal of influence
on their children, and it is not just the
positive messages that resonate. Children
tend to copy what we do rather than
what we say, so limit the amount of
shopping trips as a leisure activity, as
they might start to think that money is
an unlimited resource and that spending
is fun.
What’s more, research suggests that a
third of parents lie about money. Studies
show this will only send the wrong
message. They may learn that lying is a
good way to cover up financial problems,
or that lying about money is acceptable.
If your child asks a financial question
that you’re not comfortable answering,
be honest and say you don’t want to talk
about it.
STARTING POINT
If you are a parent who won’t hand
over any cash until your offspring have
earned it, you are in the majority.
Halifax research has found that around
two thirds (65%) of children aged
between eight and 15 are doing some
form of household chores to earn their
pocket money.
So when do you start paying? Dr
Elizabeth Kilbey suggests a weekly
amount during infant school then
spaced out to fortnightly or monthly by
the time they are finishing secondary
school.
“There has to be some sense of the real
world, and pocket money is a good way
to do that as it teaches short- and long-
term saving and good spending habits,”
she says.
The average weekly amount given to
children between the ages of eight and
15 is £6.35, according to Halifax.