How to teach your children about money

Here’s what you can do to give your children the best start when it comes to money management.

• The importance of personal finance education
• Why is pocket money a good thing?
• How much pocket money should we give our kids?
• A piggy bank - or a prepaid debit card
• Opening a savings account for your child
• Keep talking to your child about money

The importance of personal finance education

Creating a basic budget, making sound financial decisions and being aware of potential fraud risks are all lessons that can be learned early on. And it’s not just experts and parents who believe this. A fascinating study by The London Institute of Banking and Finance found that 81 per cent of 2,000 young people surveyed admitted that they worried about money. Some 72 per cent of those wanted to learn more about money and finance in school.

Separate research has found that 23 per cent of adults in the UK don’t feel confident about their financial situation, with 25% of households reporting that they have no savings at all to fall back on.

So personal finance education is vital to help the next generation avoid these issues, especially given the move towards a largely cashless society following the Covid-19 pandemic. Many don’t open a bank account until they hit 16 years old, usually coinciding with them going into higher education and being more independent. We have written a popular article on what is the best bank account for 16 year olds to help you navigate what is on offer for this particular age group.

Why is pocket money a good thing?

Rather than buying your children the things they want when they ask, you can start giving them pocket money to manage once they reach a certain age. Many parents choose to do this once their child begins school or is around six years old, but it is up to the individual family to decide when is the right time.

Pocket money can be a good thing as it gives children the opportunity to experience having responsibility for their own money and can teach them to spend it sensibly.

It is also the first chance they will have to save their own money to purchase a big-ticket item they really desire in the long term. However, it can be challenging for the parent to stick to the amount given and not give in to any demands for more.

You might reward your child with additional pocket money if they were to achieve something particularly noteworthy. Still, without setting a weekly or monthly amount, you might be giving them the message that they can always rely on you for more money.

How much pocket money should we give our kids?

Pocket money doesn’t have to be expensive. Having just a couple of pounds to call their own to start with can be thrilling for little ones, and some retailers offer so-called ‘pocket money toys’ suitable for a small budget. One factor to consider when setting the amount of pocket money you will give is whether it covers all expenses - such as small treats or magazines - or if it is an added bonus. If children have to pay for their own weekend chocolate bar, they will start to think more carefully about how they spend their pocket money!

As children get older, pocket money usually increases, and often comes with the caveat of doing household chores too. Earning in this way can be satisfying, teaches the value of money, and also ease the burden of endless chores on parents - a win-win for everybody.

According to one study, the average amount of pocket money given to children by their parents in the UK was expected to go up to £7.58 per week this year. Another option is to start low and add an extra pound on every birthday but be aware this can soon add up if you have more than one child.

A piggy bank - or a prepaid debit card

Giving children a piggy bank when they start getting pocket money is a time-old tradition. And for a good reason. Having a piggy bank is a visually effective way for your child to learn about putting money away for a rainy day. As they add cash in, they will be able to see the results of their savings grow.

While children might be frivolous with their money, to begin with, giving them complete control of the piggy bank will allow them to learn an important lesson about spending wisely. If they use all of the money in their piggy bank, you must allow them to experience the consequences and not give in to calls for more compensation.

However, there is also a more modern option for giving pocket money. Prepaid debit cards, effectively bank cards for kids, are a popular and convenient way to give children pocket money and can be used by youngsters as young as six. Automatic or instant transfers, parental control measures, and virtual tools to manage chores are all benefits of prepaid debit cards. However, most come with a monthly charge, and some also have transactional fees.

Use our prepaid debit cards for kids comparison blog for more information to guide your decision on whether this is the right option for your family.

Opening a savings account for your child

Christmas and birthdays can bring a flurry of cash for your child from relatives. They may also be gifted with large amounts of money from time to time, for example, through a grandparent’s will. It can be tempting to spend these gifts immediately, but a sensible long-term alternative is to open a savings account or bank account for kids in your child’s name. When you are opening a savings account, discuss what the money in there can be used for, whether it be education, holidays or a car when they learn to drive. Be sure to include your child in opening and monitoring the account so they can see how saving money works and how much money they have to finance their future.

Opening a savings account or a bank account from a young age also means your child should have money to fall back on in the future should they find themselves in a financial emergency.

Keep talking to your child about money

Open, honest and regular conversations about money are one of the best ways to teach your children about personal finance. They don’t need to be overly serious or formal but discussing saving, and spending decisions as a family is a positive way to keep the subject on the table.

Let your child know they can always come to you for money advice and direct them to sources of information that they might find useful when they start taking on more financial responsibility. In today's economic climate, financial literacy is a valuable gift to give your child.

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