10 positive money lessons that teach children to be financially savvy adults
Financial education for children is vital as it provides them with the tools they need to be financially savvy later in life. And, like so many other things, the earlier you start the better.
You may already know that, between Monday June 13 and Friday June 17, it’s My Money Week in the UK. The national event aims to promote financial education at primary and secondary schools so that youngsters can gain knowledge and confidence around money.
While financial education in schools should always be welcomed, there are several positive and fun money lessons you can teach children and grandchildren at home.
Discover 10 that could help younger members of your family learn about money, so that they become smarter with their wealth when they grow up.
1. Financial responsibility
This is a vital lesson as it’s at the heart of good financial practice. One way you could teach this is to encourage your children and grandchildren to make their own decisions around finances, which helps build confidence and teaches responsibility.
While it’s important to provide coaching so that they understand the potential effects of their decisions, letting them decide for themselves is a valuable lesson.
2. Saving is a good habit
Parents and grandparents usually want to make life easier for younger members of the family. That said, “giving” them everything they want may not be the most positive financial lesson in the long term as they could become reliant on you.
Instead, encourage them to save for the things they want. A good lesson is to ask them to save for something that’s expensive to them, but not impossible for them to afford, as this will help them learn that they can save up for the things they want.
3. Money has to be earned
An important lesson that will help set your child or grandchild up for life is that money has to be earned. It helps them develop a positive work ethic and an appreciation of the value of money.
One way to do this is by asking them to do jobs around the home for their pocket money. When they are then old enough, encourage them to have a weekend or part-time job.
4. The difference between what you need and what you’d like
If you’re shopping with your children or grandchildren, discuss with them whether items are needed or “nice to haves”. Key to the conversation should be the importance of only buying “nice to haves” when the items that are needed are paid for.
This is another way to teach them financial responsibility later in life, which means it’s less likely they’ll spend their rent on a night out.
5. Always budget
This dovetails into the above. As budgeting is the cornerstone of good money management, encourage younger family members to commit to a regular purchase, such as a magazine, which is paid for using their pocket money.
They can then learn to use the leftover money to buy other items they may want. This teaches them the principle of budgeting for financial commitments and ensuring that these can be met before buying “nice to haves”.
6. How compound growth works
Helping youngsters understand the principle of compound growth could ensure they make smarter decisions with their money later on. For example, it could help them understand why investing over long periods can boost wealth, while interest on debt can significantly reduce it.
One way you could do this is to give them interest on the pocket money they save, and sit down with them regularly to calculate the growth.
7. Virtual money is still money
As the world seems to be moving towards a cashless society, it’s important to teach children that payment apps and online accounts still require money in the first place.
One way you could do this is to encourage children to buy items using their own cash, so they can see the amount in their piggy bank or account reduce and then go up again as they put money into it later on.
8. Not all debt is bad
Teach your child that there is “good” and “bad” debt.
The best way to do this is to explain the difference between a mortgage to buy a home, which could then increase their net worth, versus debt on a credit card. The latter is expensive and is unlikely to increase their wealth.
9. Don’t spend lump-sum gifts
At birthdays and Christmas, when your child is likely to receive lump sums, sit down with them and discuss their options. For example, they may want to save up for a larger toy or item they really want, instead of giving in to impulse shopping and buying a cheaper toy just for the sake of it.
This may help them deal with a lump sum such as an inheritance in a more responsible way when they are adults.
10. Introduce older children to investing
As the child grows up, consider teaching them about investing. A good way to do this might be to open a Stocks and Shares Junior ISA (JISA) with them, which allows you to invest £9,000 in the 2022/23 tax year.
One advantage of a JISA is that your child cannot access the money until they reach age 18, and it could teach them the value of long-term financial planning as well as how the stock market works.
Get in touch
Another way to teach your children about money and investing could be to include them in your next review meeting. We’d be happy to explain to your child or grandchild what we do, which could help them understand the value of working with a financial planner later in life.
If you would like to discuss this, or anything else about your finances, just email us at firstname.lastname@example.org or call 01277 350560.
This article is for information only. Please do not act based on anything you might read in this article.
The value of your investment 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.