First Published 15/11/2019 in Time & Leisure Junior
January is a time when many of us will be focusing on our finances. Perhaps you are feeling the effects of an overspend at Christmas or you may be trying to save up as you think ahead to booking summer holidays.
Whether you are setting budgets, evaluating investments or planning a spending spree – good financial discipline is a valuable skill and one that most of us have to master as adults. However, the foundations for that are laid at an early age.
Research by the Money Advice Service shows that children who are encouraged to talk about money, given money regularly and are able to spend and save tend to do better with money when they grow up.
So we asked Chartered Financial Planner and local parent, Gavin Porritt, for his advice on how to make money something that you can talk to children about.
Start early
Money means different things to all of us, you might find it fascinating, alternatively you might prefer to watch paint dry than have a conversation about your personal finances. Whether you are a saver or spend money before it even hits your account may be determined at a very early age. Research shows that children’s financial habits can be formed as early as seven years old, so it is never too young to talk about money with children – even pre-schoolers.
While most advances in technology are a good thing, the switch to a cashless society is not necessarily positive for our bank accounts. Studies have shown that when we spend physical cash our brains register a small amount of pain as we part with it, this acts as a break on our spending. When spending using cards, or indeed online, the brakes are off, so like it or not money plays a huge part in all our lives and therefore it is vital to understand how it works. The earlier you can provide your children with a sound grounding the better. You may not have consciously thought about introducing money to your family. However, simple things such as counting coins into a piggy bank or playing shop with little ones is a gentle way to get them thinking about spending or saving.
Real life shopping can also be a great way to introduce them to the concepts of saving, budgets and value. Make a list before you go, discuss why different brands cost different amounts, check the arithmetic on multi-buys and discuss coupons if you are using those.
The novelty of helping out with the weekly shop may wear off. However, as they approach secondary school age you are probably getting dragged into conversations about mobile phones and other gadgets.
Discuss the merits of Pay As You Go versus Fixed-Term Contracts. What happens if the phone gets lost or broken? Is it worth paying for insurance or screen protectors? Introducing these concepts now will mean cost/benefit discussions that will be repeated in later years when considering more important insurances like Life Cover or Income Protection.
There isn’t necessarily a right or wrong answer to these questions, but having the conversation with children is important.
Little and often
Talking about money is one of the key factors in children growing up with a healthy relationship with it. That is best done by making money part of everyday conversation.
If you are out for a meal, take a look at the prices on the menu. If there are special offers, discuss them. Is it good value to take a two or three course set menu? What if you wouldn’t otherwise eat three courses? What if it draws from a smaller selection of the menu and doesn’t include your favourite meal?
Encourage saving
Deferred gratification is not necessarily an easy lesson for any of us, particularly given the easy credit that has been available for the past 25 years, indeed some people never learn this lesson, but it is crucial.
Dividing money received, either regular pocket money or one-off, into “Spend” and “Save” pots will start giving your child the discipline that will serve them well in later life. Counting it and spending it on something exciting periodically will help reinforce the good habits you want to encourage.
You may want to set up a bank account. Some of these have perks associated with children’s accounts and some banks have interactive features such as coin counters for paying in cash. It all helps to make it fun. Indeed some accounts will also add an extra bonus for regular saving.
Budgeting is a key life skill, very few people are in the position of being able to buy whatever they wish. Knowing how to distinguish between what we need to buy and what we want to buy is essential to our financial well-being. Letting your child take responsibility for their money, whether pocket money or money from completing chores will allow them to develop the right habits, rather than having to change at a later stage.
As children get older, you may be able to develop the conversation about saving into longer term objectives. Teenagers may want to save up for a special trip or expensive pair of trainers. Why not try to help them by planning out what sources of income they have – perhaps an allowance or money they can earn from chores – and how long it will take them to save. Everyone’s budget will be different, however there are plenty of resources available to start putting something sensible together. While this may be their first budget – it will definitely not be the last!
Children may be more financially savvy than you think. The Money Advice Service (now the Money and Pensions Advice Service) set up by the government to provide financial guidance conducted a major study completed in 2016, they found:
Nearly all children (98% of 7- to 17-year-olds and 89% of 4- to 6-year-olds) report having at least some money of their own.
The vast majority of children aged 8–17 have experience of saving their money (94% of those that have money).
Most children above the age of 7 are involved in how their money is saved (88%) or spent (95%), either by deciding themselves or with their parents. This increases with age.
Two-thirds (67%) of 7- to 17-year-olds receive pocket money.
This is provided for information purposes only and does not constitute any form of financial or investment advice. We believe the information in this fact sheet to be correct at the time of going to press but we cannot accept any responsibility for any loss to any person as a result of action or refraining from action as a result of any item herein.