Money is one of the biggest causes of stress in most parent’s lives. How much you have, how to spend it, how to get more - these anxiety-inducing questions will run everybody ragged at some point.
It follows that you might want to shelter your children from this unpleasant but unavoidable fact of life for the longest time possible. They’ll have an adult lifetime to tie themselves in knots over finances - why not leave them a childhood of innocence?
Except evidence is mounting that introducing kids to the concept of money early on is one of the best things you can do for them. It helps them understand the practicalities of living within their means and healthy spending habits. It can really help them build a more positive relationship with money and stop them finding themselves in financial hot water later in life.
Unfortunately, surveys have revealed that less than 50% kids learn about money at school which means this is a subject that parents have to teach.
But, before you add ‘how do I teach my child the value of money?’ to your long list of financially-geared worries, let us give you one simple answer: savings!
Savings mean that, kids can couple the concepts of finance with the pleasure of achievement. The joy of a trip to the cinema, getting new toys or being able to buy some new clothes are exciting as it is, but adding the warm glow of accomplishment, the satisfaction that they *earned* their treats, will make them so much sweeter!
Read on for our tips on saving money for kids, covering the importance of pocket money and ways to encourage them to squirrel away their pennies.
Why pocket money is important
The first thing to tackle with helping kids understand the value of money is pocket money. Giving them regular but finite funds to spend however they chose is the perfect learning experience.
Save your breath from telling them they’ll regret splashing their cash on short-term whims. It should only take a couple of weeks blowing their entire pocket money haul on a sea of sweets and subsequent swollen stomachs to bring home the fundamental concept of ‘want vs need’.
When they find themselves hankering after a particular toy, extra trip or treat at the end of the week and their piggy bank is echoing emptily, remind them when their next payment is coming and encourage them to think deeply about where that money goes.
This is the kind of lesson you could explain until your throat runs dry, and they still won’t grasp. But when they’ve experienced a never-ending week of waiting for “pay day”, the idea will sink in to their souls never to be forgotten.
How much pocket money to give can be a point of controversy. Age is a big factor, giving young kids too much money may undo any positive teachings by giving them unrealistic expectations. The amount should reflect your family financial situation as well. While it’s important not to be discouragingly low, letting your child’s expectations put financial pressure on you will undermine the important lessons you’re trying to teach.
How pocket money teaches independence
Watching their parents pull bank notes from an ATM, or wave of a contactless card in the supermarket can seem like magic to most kids. They don’t see the hard work that goes into getting that money, or the stress that goes into managing it - so of course they’ll demand endless spending. And then sulk when you refuse!
Pocket money is a surefire way to show them that money isn’t sprouting from branches in the garden but is something you earn. Set them chores around the house, small but regular ones which they can do independently, and choose how you wish to pay. You might want to pay-per-chore, which will allow them to do extra work for extra money but may inspire rivalry or shenanigans between siblings. Or, you might want to set a fixed amount every week, with a list of chores that all have to be done to get paid. You can tweak this system too, just think up a couple of ‘occasional’ chores for weeks when they’re saving that little bit harder for something a little more special.
Once you’ve set these terms, make sure the kids understand them. Get your expectations clear from the start, and no one can call foul further down the line. Or, they can, but they won’t win anything by doing it.
It’s also important to find a way to check that all the agreed tasks are being done on time. And enforce repercussions if they aren’t! Thinking that they can get away with pretending to work then still get paid is not a helpful life lesson you want your kids to learn. If they do, everyone ends up equally cheated.
How to save money with kids
- Set a goal: Sit down with your kids and discuss what they might want to save up for. Then find the exact amount they need to get it. Being specific with a fixed goal can help them stay focused by letting them track their progress.
More motivation will come when they picture getting what they want and using or experiencing it. And, finally, it will ensure they don’t end up celebrating after saving ‘about enough’ only to discover they’re still short on money.
- Help them chart their success: Once money has rattled its way in to a piggy bank, it’s easy to lose track of how much there is. But you can make saving more satisfying by printing off a chart to track their progress. There are loads available for free online or you and your kids can design it yourself.
Making the chart can be great fun and you can even get some stickers or special pens to mark off added money. With a chart to update, kids might get the glow of achievement twice. And, if it’s kept somewhere visible, they can be reminded regularly between deposits as well!
- Turn saving into investing: Introduce the subtle difference of these two concepts. Give kids two jars, one that they can empty any time and one that they have to keep for a longer, or even fixed, term.
The incentive for this longer-term choice is that you match a set amount for everything they ‘invest’. In particular, this is great for kids with more extravagant wishes that you want to grant. They can still play a part in earning their prize, even if it’s beyond their reach alone.
- Consider a children’s savings account: Another way to teach the importance of long-term savings for older kids is a formal children’s savings account with a bank or building society. A lot of places will let you open an account with only £1 deposit, so you don’t have to worry about saving before you start.
Kids will often get good interest rates as well, a reward that might just entice them to save longer. And, finally, this is a key step towards understanding the basics of banking. Older kids can be involved in picking their own account, while knowing how to keep track of remote money, judging when to spend and save, will help make the jump to managing their own finances easier.
- Cheerlead a little: While the whole point is to let kids make their own spending decisions, this doesn’t mean you can’t offer encouragement when they choose to save. Seeing the big picture won’t always be easy for them, so when they take the long-term option and pop more money into savings, they deserve to get some sort of reward. Words of support and a reminder of what they’re saving for is definitely a great place to start with this one.
There’s no denying that money is a modern torment. Not having enough, spending too much, are thoughts that keep many people awake at night. But often this starts from financial mismanagement, or lack of confidence. Helping set your kids up with the skills to save will help minimise the stress it causes them later on.
Having read this post, we hope you feel more confident yourself, if not with your own money then at least with equipping your kids with the knowledge they need to manage their own money.