How to Teach Financial Wisdom to Children

We all want our children grow into successful and responsible adults. Passing exams and starting a career can help to get them on this path, but they don’t nurture many of the life skills we take for granted. 

Teaching financial wisdom and basic financial planning to children can ensure that they grow into more confident, financially secure adults. The tips below will help you to introduce the basics of financial management from an early age.

Teach them the Value of Money

When young children have all of their needs provided for, it’s easy for them to believe that money grows on trees. They don’t see the bills that need to be paid or understand that sometimes you need to prioritise your budget.

As they get older, it’s important to show children that money is a finite resource. For example:

•        Discuss with them how much things cost.

•        Allow them to budget with a fixed amount of pocket money every week.

•        Encourage them to weigh up purchase decisions. Should they buy a bag of sweets now or a coveted toy in a month’s time?

•        As they get older, talk about the family budget.

•        When they start to think about a career, help them understand the earning potential, and corresponding lifestyle that comes with various occupations.

Instil Savings Habits

If children learn how to save money when they are young, this sets them up for a lifetime of good financial habits.

Even a small amount every week can build up, whether this is in a piggy bank or a savings account. Many banks offer preferential savings rates for children.

Encourage your child to set goals and work out how much they need to save, and for how long, to buy the special toy they have always wanted. Imagine how proud they will be when they can buy it with their own money. The skills and mindset developed will set them in good stead when it comes to saving for a car or a house deposit.

You can even reward savings habits, for example, by matching the amount they choose to save every month. This will help associate good habits with a positive outcome. This could help them to see the benefits of tax relief or employer contributions later in life.

When considering longer term savings, show your children the power of compound interest. You can use online calculators to demonstrate that the longer they save, the more their money will grow.

Learning About Investing

Investments are an important aspect of financial planning, but are rarely learned about in schools. Without proper investment knowledge, young people are unlikely to feel empowered to make financial decisions. The consequences of this could be:

•         Avoiding investments altogether.

•         Not understanding the investments in their workplace pension scheme, or realising that they can choose their own funds.

•         Following online tips or putting all of their savings in cryptocurrency.

You can teach the basics of investing by setting up a Junior Stocks and Shares ISA for your child and involving them in the fund selection process. Learn about the companies that make up the portfolio and show them how the value changes each year.

Encourage a Work Ethic

From an early age, children can be taught that their actions have consequences. As well as disciplining poor behaviour, it is equally, if not more important, to reward good behaviour.

Rewarding children for helping with household chores can help them understand that hard work pays off.

When they are older, encourage them into part-time work as this will teach them to value their independence. It can also enhance their CV when they start to pursue a career, as well as proving that they are capable of taking on responsibility.

Introducing rewards for academic success is something you might also want to consider. But it can be more productive to focus on effort and work ethic rather than pure achievement. This teaches good habits and resilience rather than focusing on a goal that not all children will find achievable.

Use Apps and Challenges

Children can engage with anything if you make a game out of it. For example, by ticking off ‘challenges’ (basic household chores), they can unlock different ‘levels’ and earn more money.

There are multiple apps available to help children to manage their pocket money and savings. Some of these are even linked with a bank account or debit card, so that pocket money is released when certain tasks are completed. 

The Importance of Giving

Children can be taught about charity and generosity from an early age. It’s worth involving them in any philanthropic decisions and teaching them about the work carried out by the charities you support.

You can also encourage them to choose their own charities to donate to on a monthly basis. Animal charities can be particularly appealing, especially if they provide photos and regular updates.

In some cases time can be more valuable than money. Giving up their time to focus on good causes can help children to understand that the world is bigger than just them. Their kindness and generosity can help to make things better for other people, society in general, or the environment.

Set a Good Example

It is difficult for children to learn financial responsibility if they don’t have a good example to follow. Children don’t need a lot of money to thrive, but they do need boundaries and security.

The following can help to build on your own financial security and set a positive example:

•         Stick to your budget and curb overspending.

•         Avoid expensive debt.

•         Save for the future and always keep an emergency fund.

•         Step away from impulse purchases.

•         Set goals and work towards achieving them.

Children learn quickly, and it may surprise you how well they engage with basic financial planning. Keep it consistent, entertaining, and age appropriate, and they will become money savvy in no time.

Please do not hesitate to contact a member of the team to find out more about financial planning.

The value of your investments and the income from them can go down as well as up.