How to talk to children about money

How to talk to children about money

There are some great ways to teach children about money at all ages (Picture: Getty)

Knowledge is power and talking to our children about money is one of the greatest tools we can teach them.

Learning about money, how it works, and what they can do with it is a financially healthy conversation which they will soon reap many benefits from.

But how do you go about teaching them?

Rajan Lakhani at Plum explains: ‘Teaching kids about the value of money as soon as possible is so important. The habits, attitudes and understanding they develop from a young age can have a big influence on how they approach money matters in adulthood.’

With a little encouragement, children of all ages can quickly learn how they can use the money to their benefit. With a little help from Rajan Lakhani, we’ve rounded up the best ways to introduce money and have a healthy and fulfilling relationship with it.

How to talk to children about money

From ages 3 plus is a perfect time to start learning about money (Picture: Getty)

Preschoolers Age 3- 4

Preschoolers are the perfect age for bringing awareness to the concept of money. At age three to four, they will have begun to know what money is and that they can use it to buy things.

For a simple way to solidify how to use money and what buying things with money is like, role play is the perfect accompaniment to any play game.

A pretend shop or market is a great way to show how to buy things and pay for them. You can do this by purchasing toy money and a cash register.

You can play make-believe that they are the shop owner and take turns buying items from each other. This opens the question about money, and how it can be used.

You can even use real coins or notes in bags to show different amounts and begin to teach them amounts and what they could possibly buy with each coin.

Rajan shares, ‘One of my eldest daughter’s favourite activities during the lockdown, when she was four years old, was playing with the toy cash register and setting up a shop. We’d display toys, including pretend groceries and use coins labelled with different values. We would take turns playing the shopkeeper and customer.

‘The pretend transactions helped her to see that our weekly groceries didn’t come for free and how to not overspend, as well as helping her to improve her basic addition and subtraction skills.’

How to talk to children about money

Even if you mainly shop online, there are still ways to teach children about money (Picture: Getty)

Ages 4-7

By this age, they will well be in the zone with numbers after learning at school and will be able to focus and count their money. This will certainly help when buying items in shops.

Use a piggy bank to save

Rajan believes that some things are cliches for good reason and while physical cash might seem feature less in our day-to-day, a piggy bank is a useful tool to illustrate physically how to look after money.

‘Using a piggy bank to deposit coins and notes has rightly remained a feature of helping kids learn about money throughout the ages. Giving a child a piggy bank gives them a safe place to store their money and parents an opportunity to talk about why it’s important to keep money safe,’ Rajan explains.

‘However, make sure the piggy bank or savings jar is transparent so you and they can see the money growing and how much money they have.’

He recommends then congratulating your child on their success as this pot grows.

Show them that shopping costs money 

With the rise of contactless payments and online banking, it’s harder for kids to see how money works, where it comes from and that things do cost money.

Rajan shares how to incorporate online shopping at this age and even how cash machines work.

‘If you pay with a debit or credit card, explain how it works – even though you’re not using cash, the money is still coming from what you’ve saved in your bank account – and let them see you making purchases with cash when possible,’ he said.

‘Even when I was young, I’d see my parents take money from a cashpoint and thought it came out of a magic hole in the wall on demand.’

He also explains that getting your kids to write shopping lists, check prices in shops and help you to pay at the checkout and get a receipt all give good money awareness.

‘If your child is using their own money to buy something, help them take some pounds from their piggy bank to the store, and physically hand the money to the cashier.’

Don’t be afraid to use long words to make money fun 

If you want to get technical with money Rajan says that there is no need to simplify it for your little ones.

‘I think one of the mistakes we make as parents is to underestimate how much our kids can understand about money. And they love having fun with cool long words. For example, shrinkflation, which means making the product smaller but charging the same price, is now one of my daughter’s favourite words!’

How to talk to children about money

Money experts suggest that talking about money helps build children’s confidence and (Credits: Getty Images)

Pocket money

Talking about money really helps build confidence and at this age, they can even start to receive pocket money, which is normally weekly but can also be fortnightly or monthly.

Parents and relatives can begin to talk about how to spend pocket money; either weekly as they wish or save for something bigger. This can give them ideas on how to boost saving and see the value of saving.

You can make it fun!

You can try to encourage cutting out pictures from their favourite magazine or saving pictures online so they can have realistic goals of saving money and how much things cost with a goal to aim for.

Chores for money

This is also the age where chores can start to be introduced in exchange for money. The idea is that the child is given age-appropriate jobs around the house in exchange for some money, normally a small amount that they can slowly save.

This can increase as they do more, for example tidying the room, sorting toys, putting washing away, vacuuming or gardening.

You can also introduce a saving aspect to the chores. Felix Atkin who is the founder of the money-saving venue app, Sharesy, introduced his two children to the Rooster Money app, which can be used as a visual way to track how much they’ve earned.

‘We have a nine-year-old daughter and a seven-year-old son. Both earn pocket money for daily chores around the house,’ he says.

‘Their daily chores are now routine and they do them without asking. They feed our cat and dog, make their beds and tidy their rooms, put their washing away and empty the dishwasher. They also earn bonuses for bigger achievements like music grades or school results.’

He feels that while saving still needs some support at their ages, it has benefited their view of money in a positive way.

‘The kids still lack a deeper understanding of money, but by having to save up for the things they really want, and choose how to spend a limited amount, is helping them to see how hard it is. We give small enough amounts of pocket money that saving up requires some forethought.
‘It has also given them a bit more respect and understanding of how hard we work as parents to afford the small luxuries they take for granted!’

Ages 8-12

By ages eight to 12 they will be fully aware of how much things cost in shops and how they can buy these.

Some children by this age may receive gift vouchers or money from relatives for birthdays or Christmas. While these can be saved up, Rajan Lakhani at Plum says you can also increase their spending awareness when you go away.

Holiday money

When you go on your holiday you might want to introduce giving your children some money to spend as an allowance. They can then spend it on what they decide whether it’s treats, toys, magazines to keep them occupied. But once the money’s gone, that’s it.

‘This will help them to make their own decisions, take responsibility for money and learn how to stay within a budget,’ Rajan says.

‘Even if they splurge it on just a couple of items quickly, it’s an opportunity for them to learn. Just make sure to stay strong-willed and not give them any extra, otherwise, you’re reinforcing the wrong behaviours.’

He also shares that children at this age can begin to learn the psychology of money which is a great tool to take into adult life.

How to talk to children about money

By saving, children can also increase interest (Picture: Getty)

Defining needs and wants 

‘Helping your children understand the difference between needs and wants is a major life lesson that goes beyond helping understand the value of money,’ Rajan says.

‘To help explain the difference, you could make a list of what people need and what they want, and then use it to discuss the difference between wants and needs.’

Teaching interest on cash 

While learning about interest can be difficult to understand there are ways you can use practical examples to help explain it to children.

Rajan shares a personal example of how to increase children’s savings in interest.

‘My eldest had some birthday money which she wanted to spend and found a toy but I could see it wasn’t really what she wanted. So I said that she could grow her money if she saved as Mummy and Daddy do,’ he explains.

‘I’ve told her that £15 is now worth £20 so she can now get the toy she really wanted, helping her associate saving with goal-setting. Yes, a 33% interest rate might not be realistic as we’d like it to be, but it’s more about teaching them about delayed gratification and why saving is a good thing.’

The key to this is remembering to follow it through and set the example if you’ve promised to save up for something.

Investing 

There is also an abundance of Stocks & Shares Junior ISA’s on the market for children including HL, Vanguard, Fidelity, and Wealthify.

As children get older, this can be the time to engage them with an ISA so they will build up their awareness and understand how it works before they take responsibility for it. 

‘Show them how much has been paid in, and how their ISA has grown,’ Rajan says.

‘Talk to them about stocks they might really be familiar with, like shares in digital subscription providers they use (e.g. Disney or Netflix) or supermarkets that you regularly visit with them to help them learn. And get them to suggest companies they’d like to invest in, then research which might be worthy of their investment.’

He says learning about causes and charity is also an all-important tool for learning about money.

‘You could also talk to them about how you choose the funds for their ISAs, what causes are important to them and how these investments might have a positive impact on the environment or society.’ 

Psychologist Catherine Hallissey also says being intentional about how we speak and teach them about money is very important.

‘For example, rather than saying “we can’t afford that” try saying “No, I’m not buying that because I’m choosing how to spend my money elsewhere”. While they may not be happy with your answer, you’re modelling intentional spending of money, which will bring huge benefits long term,’ she explains.

‘By moving out of scarcity mindset and into money choices and intentional spending, you help your kids develop a healthy consistent money mindset.’

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