It is often hard for parents to talk to their children about finances. You may not want to worry or confuse them, or you may not know where to start. But in an increasingly cash-less society, and with a potential economic down-turn around the corner, talking about money, savings and investments is more important than ever.
Here are 5 top tips for how and what to talk about with your children to de-mystify the world of finance and give them a helping hand when it comes to their own financial future.
1: Start talking about it now.
For many people, talking about money to anyone other than your spouse is a taboo subject. In many cultures, talking about finances is seen as gauche and should be avoided at all costs. But when it comes to your children, you need to open a dialogue about it when they’re young.
When they’re young you can keep it simple; talk about why you go to work, what earning money means and why different things cost different amounts. This will help instil in them a sense of value and help them to understand why you have to say ‘no’ sometimes.
As they get older, you can introduce the concepts of savings and investments to them. You don’t have to go into great detail about the ins and outs of the FTSE100. But you can teach them that it can be better in the long term to put your money somewhere else instead of spending it as soon as they get it. On the topic of investments, talking about the idea that they could own a small piece of some of the shops they see on the high street will also make an interesting conversation.
If you’re going through financial hardship you don’t necessarily have to burden your children with that. But opening up to them about why you can’t get them everything they desire (even though you’d like to) can help them to better understand the value of money.
- Let them earn some money by doing odd jobs.
One of the best ways to teach your children about the value of money is to give them the chance to earn their own. This could be through doing house chores or doing some volunteer work that you give them pocket money for. This helps to show them the value of money and the concept of earning and work. And once they start to earn their own money they will quickly realise how fast it can go if they’re not careful with it.
- Get them a savings account in their own name.
Many banks and building societies offer Child Saver accounts which allow children to save their hard earned pocket and access it when they need to.
If you pay them pocket money in cash (more on that later) you could allow them to spend their cash or go with them to the bank or building society and save it in their own account. As they get older they’ll be able to see how their savings have (hopefully) grown, which gives you an opportunity to talk about interest rates and investments.
- Use cash where possible.
For younger children, savings and investments are quite an abstract concept, and using debit and credit cards makes money seem intangible. You just wave your card in front of a machine and the person behind the counter gives you things. By using cash where you can, it will make it all seem much more real.
You could even allow your child(ren) to pay using cash. This can turn into a little maths game – adding up the price of things and working out what change they should get back. If the child is using their own money this will also reinforce the idea that money can disappear just as fast as they can make it!
If you’re going abroad you could also get some foreign cash for them to look at. Explain that not all countries use the same currency and talk about the similarities and differences between the countries cash. You could also talk about the exchange rate and see how the prices differ for some of their favourite things.
- Show them how to save.
Children learn a lot by following examples, so you can set a good one by setting up a savings or investment account on your child’s behalf and keeping them regularly updated on its progress. You could, for example, set up a Stocks and Shares Junior ISA in their name and show them what it has become worth over a period of time compared to what you have contributed on their behalf. Depending on the type of ISA you open you could also invest in brands they know or enjoy which will make it a bit more exciting and engaging for them.
A recent study by The Share Centre showed how investing for a new born child from as little as £1.67 per day could result in a staggering £18,000 windfall by the time they turn 18. So starting to invest on their behalf sooner rather than later will give you the biggest potential for returns. However, you should be aware that investments can go down as well as up.
Teaching your children about money can be daunting, but learning about these things early makes it more likely that they will understand as they grow up. It doesn’t need to be overly technical, just make it relevant to things they see and experience every day and they’ll soon start to understand how it all works and why it’s important.