School’s out - so time for some important lessons about money

So, in the intervening weeks, what better time than to give children some valuable lessons about money and how to manage it.

Teaching children about money equips them with the knowledge and skills they need to manage their money effectively now and in the future.

Children who do better with money tend to have parents/carers who talk to them about money and give them responsibility for spending and saving from an early age.

So here’s some useful pointers..

1) Have a conversation

The starting point is to talk to children about money. Sounds simple, but this is the most effective way to help children understand personal finance.

Explain how money is earned - it doesn’t grow on trees and it doesn’t come free out a cash machine or via cash-back at the supermarket!

Discuss your job, explain how you earn money and how you have to plan a budget with that money each month. 

2) Physical cash

Many transactions these days are cashless - by the tap of a card or the point of a phone. But behind these are cash and money earned. For younger children show them the coins and notes you have in your purse or wallet and ask them to help you count them. Talk about the different sizes, colours and numbers on them and how many different coins and notes there are altogether.

And why not spend a whole day using only cash? Youngsters can get a real feel for the relationship between money and goods by seeing cash in action! . A simple trip to buy small items in a supermarket or local shop lets them prepare the money, hand it over to shop assistants and receive – and check - their change. They can also do things like pay for treats from  ice-cream vans or slot them into sweet machines and electronic kids’ rides. 

3) Involve them in supermarket shopping

As you go around the supermarket, ask your children to choose the best value of different products and encourage them to see what things cost.

Challenge your children to find ways to save money while in store with you. If they need some clues, suggest buying supermarket own brand items instead of multipacks and looking out for special offers.

4) Explore the difference between need and want

Explain the difference between needs and wants. Contrast examples of goods we all need every day, such as food and clothing, and items or toys they ‘really really want’, but don’t actually need. This is a great way of introducing the concept of saving for items on the ‘want list’ and the need to exercise restraint in spending ; ie. Buy what you can afford. 

It also helps children to understand the there may be times when parents can’t afford everything that everyone wants.

5) Earning and Managing Pocket Money

Giving children pocket money or an allowance is a good way to introduce saving habits and money management at an early stage. Introduce the idea of a cash reward for helping around the home. Making the link between achievement and financial reward can go a long way towards helping kids appreciate the merit of earning money.

Talk to them about setting a savings target and encourage them to adopt good habits, introduce ideas around keeping your money safe and planning and saving for the future.

6) Set up a Savings Jar

Using old glass jars or plastic containers is a quick and easy way for younger children to actually watch their savings grow as the jar fills up. Suggest that  they decorate each one creatively, perhaps to represent what they’re saving for. For example, tying a bow around the container for a major present, or sea shells if they’re saving for a holiday or trip to the beach.

Together, regularly count the money they’ve saved.

7) Talk about different ways to pay

Talk about the different ways of paying for things – from cash and traditional debit or credit cards, to paying with contactless cards or using your mobile phone. Explain that, whatever the payment method, money has to be earned and doesn’t come free with a plastic card or phone.

8) Involve them in spending decisions

Involve them in appropriate spending decisions, such as buying a new computer or a kitchen appliance. Making real life spending and saving decisions about even small amounts of money can help children to understand more about managing their money.

9) Show them the cost of running a home

Look at utility bills together to explore the cost of running a home.There’s no need to reveal the entire household finances if you don’t think that’s appropriate. But do use a big starting sum to let them see the how the figure falls as you tick off all the household expenses. Get them to either use a calculator or do the sums themselves as they deduct the cost of each item on the list.

10) Plan to succeed

For older children, if their monthly social life allowance disappears too soon, suggest breaking it down into four weekly amounts and planning to make each quarter last for a week.

If they’re hankering after new clothes or the latest branded trainers, help them to devise a saving plan.

11) Explain how borrowing works

As children turn into teens, they’ll usually begin to ask for more money! This is a good time to explain about borrowing. 

The basic principle is, of course, that you shouldn’t borrow money unless you know how and when you can pay it back. Explain that banks and similar companies offer to lend people money, but that the amount to be paid back will be more than the amount borrowed ie. the interest.

You could also explore all the different ways to borrow, from loans from friends or relatives, to short-term overdrafts and credit cards, to longer-term borrowing like personal loans and mortgages. 

Emphasise that  any borrowing comes with obligations - whether they be moral or contractual.