The habits you form when you’re young can easily continue as you move into adulthood. These can range from the type of foods you like to the sports you enjoy playing and watching.
It can also apply to how you manage your finances.
Teaching your children financial lessons as they are growing up can be so important. Helping them develop positive habits at a young age can often mean the difference between them being financially savvy and secure in the future or struggling with money issues throughout adulthood.
The lessons themselves need not be arduous. Everything you’ll read here is straightforward and will often just be a case of you demonstrating something you already do yourself.
Children learn at different speeds, so it’ll be down to you to identify the best time to start instilling each of the lessons outlined here.
So here are some key lessons you should aim to teach your children.
1. A general awareness of money
By making conversations about money in your own home a natural part of day-to-day life, you can help your children get an understanding of some of the decisions you’re making and why they are important.
Clearly, you’ll need to be careful you’re not sharing information you wouldn’t want shared outside your family. But sharing simple facts such as how you’re saving up for the next family holiday, or that you have a household budget for food shopping, will help give them an understanding of the importance of financial management.
Talking about money as they’re growing up should also give them confidence to approach you with questions and concerns about their own finances as they get older. Better that than bottling up problems and getting into difficulty.
2. How to deal with a regular income
Practical lessons are often more effective teaching tools than simply trying to explain a concept.
That’s why giving your children pocket money – at an age where you’re comfortable that they’ll appreciate it – can be so useful.
Even a small amount can be the starting point for them getting used to saving up for things they want to buy. It can also help them get used to budgeting, by encouraging them to set money aside for saving and the rest for immediate disposal.
3. Why it’s good to save for things
As you’re teaching your children about savings, a key step is to open a simple savings account for them. Maybe make it a special occasion by taking them to the bank when you do this, rather than simply doing it online.
With an account set up – or even just a simple “piggy bank” when they’re very young – you can encourage them to save up for things that may appear expensive in relation to the money they get each week, but affordable if saved for in the longer term.
This can then lead on to conversations about what they do with any additional sums of money they are given, such as at birthdays and Christmas.
4. The two sides of the compounding coin
Opening a savings account gives you a good opportunity to explain, in simple terms, how interest works.
When you believe your children are old enough to understand, you can expand this into talking about compounding and the positive effect it can have on long-term savings.
Both of these can be an effective motivation to save regularly, and maybe increase the amount they save.
A further lesson for when your children are in their mid-teens is telling them about the other side of the compounding coin – how high interest rates can quickly escalate debt levels on unsecured borrowing such as credit cards.
5. Managing their money online
Even when you’re looking at it on a computer screen, money is still money. The current generation of young children will find that lessons about coins and notes become secondary to finding out about payment apps, “tap-and-go,” and online banking.
Teaching the concept of digital money is easier with an account they can manage and use themselves.
So, a good starting point is to show your children how to access their savings accounts and how you can add to it online from your own account.
As they get older, you can set them up with a straightforward bank account they can utilise for online purchases. Then, when you believe the time is right, they can progress to using an ATM and spending in shops with a debit card.
6. The importance of cyber-security
Online financial management has led to a massive rise in online scams and financial fraud.
Young children can be gullible and credulous, so it will be easy for them to fall victim to a simple online scam. Losing a relatively small sum to a scammer, even if you can replace it, could leave them shocked and heartbroken – especially if it’s money they’ve saved carefully.
So simple lessons about protecting yourself online, not clicking on links, and being careful with passwords, can be invaluable.
7. The idea of earning to spend
To be able to spend money, you need to earn it, and to earn it you need to work.
Consequently, getting your children to help with household chores to earn some, or all, of their weekly pocket money can be a valuable lesson to teach them.
That way, they’ll come to appreciate the value of money and how rewarding spending money you’ve worked hard to accumulate can be.
Then, when they are old enough, you could encourage them to get a part-time job to increase the amount of money they have available and start to learn about financial responsibility.
It’s up to you to lead by example
It’s always been the case that children learn by example, so it’s worth looking to try to instil and reinforce positive habits.
This means that practising what you preach is important when it comes to passing on financial lessons.
Think about the good money habits you’d like your children to pick up and whether you’re setting the right example. So, for example, profligate spending in front of them may not be a positive lesson, while referencing the fact you’re saving up for something can be.
Get in touch
At bdhSterling, we have a wealth of experience in helping clients with their financial planning.
Get in touch to find out how we can help you.
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC legislation, which is subject to change.