You’re sat at the kitchen table, with a not insignificant pile of paperwork to sort – bills to pay, forms to fill in, a few unopened HMRC envelopes to brave – and the kids are badgering to see what you’re doing…we’ve all been there. You try to head them off towards the Xbox with a vague promise of some sugar laden treat a little later…but they are not buying it. Which made us think – should we hide money matters from little people, or should we encourage open honest discussions about the value of pennies?
Research shows that how we behave around money as adults is learned early on from our parents. A good financial education makes for a good financial understanding, an essential life skill. Money doesn’t grow on trees, and neither does the cash machine just churn it out with wild abandon, but by being up front, honest and transparent, you can equip children with the tools and information to stay in the black rather in the red when they are older – and if you plan it carefully, it can be fun too!
- Be bill savvy
As the bills come through the letterbox, explain what each is for (electricity bills are a really good way to explain why they should flip the lights off when they leave a room!) Council tax bills are interesting as you could discuss the services you get in return (e.g. imagine if nobody paid this – how much rubbish would build up outside in our street?!) It’s also useful to explain what a direct debit is, and how it can help you manage your monthly money (mostly because “Mummy brain” can make you forgetful…)
- Earn it to learn it
We’re not talking child labour, more like one shiny new pound for helping with the chores now and again, which is an excellent lesson that money does not grow on trees but that you have to work to earn it.
- Save for a rainy day
The importance of saving and having a “slush fund” is an important lesson. Your child probably already has a piggy bank of some fashion and pops any pennies they earn (or find!) into it but put it into context by explaining that if her Furby ran out of batteries, she would be able to buy new ones immediately if she had saved up enough (although, for any parent with a Furby in the household…this is not necessarily good news!)
- And save some more…
You may want to open a child savings account for larger chunks of cash such as birthday money (out of sight, out of mind!) and then if an important “need” arises (in the form of new Nerf gun, no doubt), you can help him work out if he has enough, or if he needs to save for a little longer. Designing a progress chart together is also helpful, and make sure the goal is realistic otherwise they will become frustrated waiting for months for the pennies to stack up.
As well as a saver account, if you child was born between 1 September 2002 and 2 January 2011 and took advantage of the Child Trust Fund scheme, you can top tax free – the £3,840/year allowance (rising to £4,000 from 1 July) runs from birthday to birthday, and will rise with inflation each year. This is then locked away until the child’s 18th birthday – although do be aware your offspring can choose to spend the money as they wish (so they may fund an extravagant summer in Ibiza rather than paying those uni fees as you had hoped…)
- Find yourself a shopping buddy
Try working out a weekly meal plan and accompanying budget, then head to the supermarket (or laptop if you prefer to shop online). Equip your child with a calculator, and ask her to add up the total as items are ticked off the list and added to the trolley. This shows how quickly money is spent – and why there may not be enough left at the end of the shop for that big bar of chocolate she is hankering after.
- Negate peer pressure
Get out all your child’s “gotta have’ toys that you were persuaded (or more likely pestered) to buy over the last few years, and for each one, ask him why he so desperately wanted it – and how often he actually still plays with it. In many cases this will illustrate the difference between wanting something because they found it really fun and interesting…and wanting something just because their friends have it. (Remember that Cabbage Patch doll that is still in your parent’s attic….?)
- Deal with debt
Whilst some would want to cushion children from adult woes, others feel that a proactive approach now is more conducive to avoiding such situations when older. In simple terms, explain what debt is – in other words, that you have borrowed something, and need to give it back. Using simple online calculators (try MoneySavingExpert) you can work out how long it will take to pay back and also explain what could happen if the debt is not repaid (not to be scary, but to outline the implications of getting into debt, and how to important it is to take control of it)
- Plan your own pound shop
The concept of value is difficult to convey – so perhaps show what its worth by asking your child to guess what a pound will actually buy. You may want to show some images of products which fit the bill – and some that don’t – to illustrate your point.
- Count the cost
If you’re constantly being harassed to head out for the day (bowling, movie, swimming, the arcades at Barry Island which necessitate selling your soul for two-pence pieces…etc) then try constructing a simple spreadsheet to help youngsters appreciate that cheerful is not necessarily cheap. Ask them to think through which it involves, and what each might cost – multiplied by how many members of your family. Think petrol, entry fees, lunch, snacks, rides, souvenirs, etc etc – and then when they have their “grand total” worked out, compare that back to the weekly shopping budget, above… and they will soon see why a weekly Saturday family outing could see you eating nothing but beans on toast for Sunday dinner!
MORE: The Money Advice Service recently surveyed young people about financial capability – click to read the mas-financial-capability-of-children-young-people-survey initial findings. Full results are due in 2017.
TIP: Have a look at the brilliant child friendly resources on the Personal Finance Education Group’s website www.pfeg.org/, the UK’s leading financial education charity for ideas on teaching budgetary basics.