Properly managing savings and finances is a hugely important life skill, but many of us manage to reach adulthood with only the most basic understanding. As with most things, the younger you get started with a skill, the better you’ll be at it.
Teaching your children to manage their finances in a responsible way will put them on the right footing for the rest of their lives. So, here are 5 of the best ways that you can introduce your children to the world of money.
Lead by example
The first bit of advice may be the hardest to follow. One of the best ways to ensure that your children have a healthy relationship with money, is to lead by example and show them – just as you would when it comes to diet, social behaviour and exercise.
Always do your best to manage your finances responsibly in front of your children; give them an idea of how your budget works, avoid payday splurges, show how you save your money and how interest works. Providing your children with examples of how money works in the real world will give them a strong framework to base their own actions off.
Set up savings together
Many parents set up some form of savings for their children’s future, to help them have a good launching point from which to start their life. Involving your child directly in these savings can be a great opportunity to show them the value of saving, while also giving a long-term example of how their own contributions have grown.
While it may not be wise to put all the savings for your child under their control, setting up an account like a junior ISA can help them to manage small contributions. Regularly reviewing these savings accounts with your child will let them see exactly how their savings are growing.
Let them learn from experience
It may be difficult, but it is important to let your children learn by making mistakes. Experiential learning is one of the best ways for them to learn from their mistakes, so be letting your child make a bad decision you can help prepare them for the future.
For example, if you let your child squander their whole monthly allowance immediately on a big purchase, this will help them to realise that they need to spread their income over the entire month. It is important here to be clear with the child about the consequences of their actions, without telling them off or punishing them.
Pocket Money Apps
There are more and more pocket money apps and savings tools hitting the market to help children learn how to use money. Most frequently these involve using a pre-paid debit card, that the child can use in shops and manage from the app.
This can be a fantastic opportunity to introduce your child to digital money and money management – this is the main way that most adults interact with their money after all. Some of these apps, like gohenry, function almost exactly as normal debit cards do, while featuring additional parental controls and oversight.
Be the bank of mum & dad
When your children get older it is inevitable that they will start treating you like the bank of mum & dad, but this can also be an opportunity to teach. Try to treat your child’s allowance like a bank would.
If your child spends less than their full allowance amount, provide them with some interest to reflect this. If they had to borrow extra money from you, treat it as an overdraft and debt. While it may be difficult at first, this can give your child a solid understanding about responsible spending and borrowing – especially important considering the levels of credit card debt in young adults. Just make sure you don’t set your interest rates too high! Try using a tool like the compound interest calculator to work this out.
It might not always be easy but following these 5 tips will make sure that your child is off to a great start in the world of personal finance.