How you can help your child or grandchild become more financially literate

When you were young, how did you learn about managing money? Did your parents give you pocket money for doing chores around the house? Or maybe they bought you a piggy bank or opened a building society account and helped you understand the importance of saving?

However you learned about managing your money as a child or teenager, the experiences and support from adults – like your parents, grandparents, or teachers – may well have shaped your financial attitudes and habits in your adult life.

So, now you are the adult, sharing your knowledge with a child or grandchild is likely to help them to become more confident with their money.

Given that a recent study by Shepherds Friendly revealed that only 1 in 4 people in the UK are financially literate and know how best to look after their finances, this is even more pertinent than ever before.

Of course, what you teach your child or grandchild about finances will depend on their age, so read on to find out how you can help children of different ages become better at looking after their money.

It’s important to start teaching children at junior school age about money

It’s well worth educating children of a young age about the importance of money and managing their finances. You could do so in the following ways.

Giving them pocket money for doing household chores

One of the most effective ways of teaching your child or grandchild about the importance of money and how to manage it is by encouraging them to earn their pocket money by doing chores or activities around the house. That could be anything from washing up to keeping their room clean and tidy.

This can help them understand the pride of working to earn their valuable pocket money and the importance of rewarding hard work with something enjoyable.

Encouraging thinking about saving now versus spending later

At junior school age, it could be beneficial to set up a savings account for your child or grandchild and encourage them to make regular deposits into it.

Additionally, children at this age can also be taught the importance of saving now versus spending later. For example, it could be a good idea to encourage them to understand the value of self-control when it comes to spending. You could use the motivation of “one sweet now, or two sweets later.”

Helping them understand how doing things costs money

Children often learn by watching and doing. So, asking them to load the shopping and then hand over the money will help them understand where the money is going and learn how doing and buying things costs money.

For example, you could list all the things you’ll be doing with them over the coming days and put cash into a wallet or purse. Ask them to pay for each activity or item using the money in the purse so that they can see the change reducing each time.

Teenagers need to know the importance of budgeting

When children hit their teenage years, it could be a good idea to teach them about managing their money.

Whether it’s money for lunch, school supplies, or other small necessities for this period in their life, pocket money can run out very quickly for young teens. So, discuss “wants versus needs” and how they might “want” some items but not “need” them, and how they should balance their spending accordingly.

For example, many teenagers feel peer pressure from friends and will look to purchase items because their friends have them. However, these might not be items they really want or need, so helping them to have more self-control over what they purchase could be useful for them.

Opening their first bank account

As a teenager, your child or grandchild will no doubt have outgrown the piggy bank that you bought for them when they were young. So, there’s no better time to help them set up their first bank account.

This will help them to understand the benefits of putting money aside whenever they can. Additionally, you can also teach them about logging into their online account, managing direct debits and standing orders, and even basics like using cash machines (and why not to use ones that charge!).

Letting them take over budgeting (with supervision) for a short period

Talking to your child or grandchild about your financial responsibilities and helping them to understand what you need to budget for could really help them with their own finances.

You could explain to them how you need your income to cover bills, shopping, household costs, and anything you spend on your child too.

While obviously supervising them, you could help them take over the budgeting for a few days and then sit down with them at the end to discuss how they felt it went. For instance, was it harder than they expected? What did they learn from it about budgeting and their own finances?

Young adults can start building their finances for the future

As a young adult, being able to handle finances correctly and understanding what savings and investment options are available is important. So, as their parent, guardian, or grandparent, helping them become more financially literate is a great first step.

Helping them to understand the benefits of starting to save early

You’ll know first-hand how important it is to start saving early, but your child or grandchild won’t have that same level of experience. So, teaching them the benefits of starting to save early can be helpful for them in the years to come.

For instance, encouraging a young adult to start saving early could allow them to take advantage of compound interest. This refers to the principle that when they save money, as well as earning interest on the savings, they could also earn interest on the interest itself.

Indeed, as a result, you could help them to understand how keeping their money saved – and not accessing it – could see their money grow at a faster pace due to interest rates.

Plus, by starting to save early, it will put them in a better position to meet their short- and medium-term financial goals in the future, whether that’s buying a new car or even purchasing their first home.

Discussing the potential benefits of investments

Once your child or grandchild has been working for a while and they’ve accumulated some savings, it may be a good time to talk to them about investing. You could encourage them to think about setting long-term goals and investing regularly over time.

Get in touch

If the young adult in your life wants to understand how goals-based financial planning could work for them, you could even bring them along to meet your financial planner.

Planning as a family – particularly when it comes to gifting and leaving a legacy – can be beneficial to both you and the younger members of your family.

Please email info@harperlees.co.uk or call 01277 350560.

Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.