Money management for children

You can give your children a head start – and help them avoid getting into financial difficulties in the future – by teaching them the basics of money management.

Get it out in the open

Your children will take their lead from you, so make sure you discuss money-related issues openly and calmly.

Stay positive

Most households have minor financial crises from time to time. Try to stay positive and explain simply to your kids why you can’t give them what they want immediately, rather than repeating, “We can’t afford it”.

Let them make mistakes

Do not be worried if your kids do not get everything right first time. The point of getting them to manage their own money is to let them make mistakes and learn from them before they enter the big wide world.

Have a family discussion

It may help you and your children to have a regular time when you get together to discuss financial issues, such as allowances and savings. As well as providing a forum for everyone to air their views, it will also give you a chance to repeat the four key elements of money management – Earning, Spending, Saving and Borrowing.

The keys to money management

Earning

• Even young children can earn their pocket money by helping out with chores, such as making their beds or tidying their rooms. Older children could baby-sit, wash cars, walk neighbours’ dogs or look after their pets when they are away for a few days. It will help if you explain the concept of earning by telling them where the household income comes from.
• Older children can have more detailed lessons in earning, covering topics such as tax and household bills.
• Introducing them to the idea of buying and selling will help them to understand the value of money. Under adult supervision, they may even try selling small items, such as homemade jewellery and cakes or unwanted toys and computer games, to their friends or family members or at car boot sales or online.

Spending

• Explain budgeting by suggesting your child divides his or her allowance into different envelopes or jars, according to how the money will be used. Categories could include everyday spending, toys, clothes and saving.
• Help your children learn the difference between wanting something and needing it, using examples from their lives to help them understand the difference.
• Introduce responsibility gradually, starting by letting your child buy his or her own toys out of a weekly allowance, for example, and then moving on to bigger items, such as pet supplies, school equipment and clothes.
• A prepaid debit card is a useful way of teaching older children to budget because there is no danger of overspending. You also have the advantage of controlling how much is loaded onto the card. Find out more at www.visaeurope.com/personal/youthprepaid/main.jsp

Saving

• Saving is one of life’s most valuable skills. Start as young as possible to teach young children to put money aside from their pocket money or anything they earn from doing chores. They need to understand that saving means that they will be able to afford things they really want and will not be able to have if they fritter their cash on sweets and throw-away toys.
• Younger children especially will benefit from literally seeing their savings grow, so put the money in a jar and pay them their pocket money in coins, rather than notes – that way they can easily add to it.
• Initially, your child will want to reap the rewards of saving by buying something special at fairly short intervals. With help and encouragement, the time between treats should gradually extend from days to weeks and months, so that by the time they are teenagers they can save for substantial items.
• Let your children know if they have a Child Trust Fund account, started with £250 given by the government to all children born after 1 September 2002 and opened by the person who receives child benefit for that child. There is an extra £250-500 from the government at the age of seven. Use the fact that it is their money, set aside until they are 18, to explain the benefits of saving. Find out more at www.childtrustfund.gov.uk.
• Try to set aside a small portion of your income on your child’s behalf. You can offer to keep the money for them or, better still, help them to open a suitable child-friendly savings account. You, and friends and relatives, can add up to a total of £1,200 a year to each Child Trust Fund account – see www.childtrustfund.gov.uk for more details.

Borrowing

• Borrowing should only be tackled once your child understands earning, spending and, in particular, the benefits of saving up for major purchases.
• The first lesson is that there is a cost to borrowing. Start by lending your child the money he or she needs for that must-have item but explain that they will have to pay you back a bit more than you gave them – and why. It is an opportunity to introduce the concepts of interest rates and regular repayments in a practical way.
• Keep the repayment period as short as possible, especially for young children, and do not accept excuses or payment in kind – if you make it too easy, the lesson will not be learned.

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