Seven top tips to teaching your kids about money matters

Learning to be responsible with money is a valuable life lesson and if kids learn good financial habits from an early age, they are likely to stick with them.

However, the way we use money has changed dramatically since many of us started to have pocket money. There are now a lot more options for our kids when it comes to savings, so we spoke to Al Ward, Client Savings Manager at Choices by abrdn, formerly Standard Life Aberdeen., to create a list of tips for parents who want to teach their kids everything there is to know.

1. Cash for beginners

Earning pocket money is still common among most children. Many parents pay their children money in return for doing household chores or as a reward for good behavior. It’s a great way for young children to learn about the value of coins and banknotes, and having their own hard-earned money can make them feel like adults.

Once a child has the money, a physical piggy bank or savings pot is a great way for younger kids to see their savings grow. This is also a good time to start talking to them about what they would like to do with their money and create habits that will stay with them into adulthood.

2. Spend, Save and Give

If you choose to reward your child with spending money, this could be the perfect opportunity to introduce the concept of spending, saving, and giving.

Spend – your children can spend an agreed portion of their money on whatever they want, for example, a magazine or candy.

to safeguard – a second part is saved either for something in particular, or for longer-term savings in a bank account perhaps.

To give – encourage them to use some of their own money to help others. As a family, you might have a favorite charity that you support, for example, or awareness days and events like Comic and Sport Relief are a good time to discuss donation.

3. Control spending

Cards have overtaken banknotes and coins as the most common form of payment. For older children, prepaid debit cards are available so that pocket money can be paid directly from your bank account to theirs.

These cards can be used online or in stores, giving your child some independence in their choices, but parents can maintain a high level of control, including setting limits on how much children can spend and what they can buy.

Most also come with a smartphone app, so if your kid has a phone, you can both track how much money they’ve made and how much they’ve spent. But be aware that they are all chargeable, so do your research before choosing a provider.

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4. Lessons on the power of savings

Working toward longer-term savings goals can be very rewarding and teaches kids that resisting the temptation to spend immediately ultimately means that you can do a lot more with your money.

For older children, you can promise to pay them a “bonus” if they reach an agreed savings goal. For example, if they are saving for a new game that costs £ 25, let’s say you will give them £ 5 if they can save £ 20.

This gives you the opportunity to explain how to save and invest for the long term, why they might need to, and how it can help them generate more money in the long term.

5. Adopt a saving habit

Opening a savings account is another great way to introduce kids to saving and to explain concepts like earning interest. It is an exciting and adult thing for a child to do. A Junior ISA can be good if you are happy to invest in stocks and are sure your child cannot access the money until they are 18.

Alternatively, children’s bank accounts are available from the age of 11 and offer most of the same features as adult accounts. You can’t have overdraft, but you get a debit card and you can set up direct debits and standing orders.

Unlike prepaid debit cards, they’re free, but you don’t have the same degree of control over your child’s spending, so they are responsible for their money. Maybe try to encourage them to put some of their pocket or birthday money into savings and watch it grow.

6. Build a budget

Another key part of financial literacy is keeping track of your spending and learning how to budget. To do this, help your older kids write a list of all their monthly in and out, including memberships and money for treats. Don’t leave anything out and try to encourage them to set aside regular amounts as savings, thus creating a cash reserve for unforeseen expenses.

Budgeting is also a great way to give your child insight into their finances and how they are set to meet their financial goals. It is a great motivation to look for ways to cut costs, like changing mobile phone provider, for example, to save more money each month. They might also learn the need to sacrifice buying something now in exchange for the possibility of affording something better in the future.

7. Stay safe

Protecting personal information is just as important a lesson as the expense and savings. Chances are your kids are more tech savvy than you are, but there are still things you should do to make sure they protect their identities online.

Keep an eye on your child’s social media accounts and make sure they are aware of the dangers of sharing personal information through email or other forms of digital communication. Teach them the benefits of using websites like PayPal for transactions and make sure they are alert to keep an eye out for online and offline scams. For example, they should know that their bank will never ask them for personal or account information via email or text.