Teaching Children Money Habits for Life

The Foundation

• Educate your children about the concept of money early on. As soon as they can count, introduce them to money. Take an active role in providing them with information. Observation and repetition are two important ways children learn
• Introduce the basic money concepts first: earning, spending, and saving. Instil money saving habits and let them see something tangible building-up
• Teach them the fundamental concept of setting goals. Any object or item that your children wants can be part of the goal-setting session. Such goal-setting helps them learn to become responsible for themselves
• Talk with your children about their wants, needs and goals such as a new bicycle, a new Playstation, a pair of glasses etc…. and explain the difference between the three
• Introduce them to the value of saving versus spending. Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money that your children save at home, encouraging them to help calculate the interest and see how fast money accumulates through the power of compound interest. Later on, they also will realize that the quickest way to a good credit rating is a history of regular, timely payments
• Don’t just teach your children about saving as forcing them to save all of their money may result in resentment or impulsive spending. Also teach them how to spend wisely,that the purpose of money is after all to spend and to give them a better life at some point. Encourage them to save for something they really want and then reward them with something non-monetary reward, like a good hug and a kiss
• And, finally be consistent with your approach to teaching your children about money, whatever that approach may be

Methods for Young Children

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• Make it fun. The more fun it is, the more the child will be interested to save
• Encourage discussion and integrate them into the decision-making process to determine the savings priority: ask them which item is most important 
• Explore with them the possible ways to save for a goal. For example, allowance for chores, selling lemonade at fete/fairs etc… 
• Set aside some one-on-one time with them to check costs and compute the savings needed. For example, go onto comparison websites. Once you have the price, work out how many weeks it will take for them to reach their goal and make the purchase 
• If you are financially able to match some of your children’s savings goals, they may be more inclined to save, because the savings add up more quickly 
• Celebrate when the goal is reached but also take time to set a new goal 
• Try taking your children with you when you go to a bank or other financial service provider and let them see you making deposits and explain why you are saving. Your reason might be for home DIY, a family holiday, or a rainy-day or university fund
• Give your children a moneybox or a piggy bank, and let them save the pennies and watch them mount up

Save Spend and Share

Introduce the ‘save some, share some and then spend some’ philosophy. This can take the form of the following:

The Save Piggybank (PB). The SAVE PB is long-term savings for large ticket items like an Xbox, a bicycle or snooker table. It may take your children a long time to save enough to purchase these things, but it will teach them a little patience, perseverance and self-discipline.

The Spend Piggybank. The Spend PB will allow them to spend on anything they like on the lower-priced, short-term purchases, such as the latest CD. If they want a pair of jeans or a new football, they can buy them right now.

The Share Piggybank. Encouraging your children to make some charitable contributions can help foster compassion for others who have less and gratitude for what they themselves have. Every year Children In Need have shown that children love to get involved in charitable events and it demonstrates that relatively young children can learn compassion and reach out to others. However, this PB could also be used to take friends for a popcorn at the local cinema or buy their friends goodies at the ice cream van.

How to Apply ‘save some, share some and then spend some’ philosophy:
If you give them £100 for their birthday, teach them to divide that money up anyway you want.
Here are a few ideas which you can show them:

• Place £33.33 in the Save PB, £33.33 in the Spend PB, and £33.34 in the Share PB; or 
• Place £50 in the Save PB, £25 in the Spend PB, and £25 in the Share PB.

Using the three different PBs helps to balance saving and spending habits. It is also a good system to help your children get the things they want or need immediately and to help them save for things they need or want in the future.

Allowance

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An allowance is a discretionary income that can – and will – allow your children to make money management mistakes. As an example, buying an overrated toy that soon disappoints will often cause your child to pause before spending in the future.

Giving your children an allowance can help them learn how to manage money because it ties buying power to effort. The amount of an allowance can vary with age, your children’s maturity and your family’s financial position.
However, placing too many restrictions on the allowance can turn a learning opportunity into a family argument, resentment or both. Nevertheless, that does not mean that your children should not participate in routine household chores and learn to be responsible for their own stuff, such as cleaning their room or doing their homework.

It takes work and organisation to maintain a household. Being a member of the family has an expectation of sharing in that maintenance effort. Providing opportunities beyond daily chores to earn extra money like weeding the garden or raking the lawn will tie that effort to potential buying power.

Bank Account

Help your children open their own account and encourage them to save a portion of their allowance, gift or money, payment for extra chores or wages (for lawn mowing or cleaning their room). Remember, don't always refuse them when they want to withdraw a portion of their savings for a purchase. This may discourage them from saving at all.

You can also introduce your children to savings bonds as well as premium bonds. Perhaps more importantly, when given as a gift, bonds cannot be spent immediately, reinforcing saving and goal-setting lessons.

Keeping good records of money saved, invested, or spent is another important skill young people must learn. To make it easy, use 12 envelopes, 1 for each month, with a larger envelope to hold all the envelopes for the year. Establish this system for each of your children. Encourage them to place receipts from all purchases in the envelopes and keep notes on what they do with their money. See Children's Savings Account

Spending

Use regular shopping trips as opportunities to teach your children the value of money. Going food shopping is often a child's first spending experience and about a third of our take-home pay is spent on Asda, Sainsbury, and other supermarkets, so it does make sense to get them involved.

Spending smarter at these stores (using coupons, buy one get one free sales, comparing prices) can save thousands a year for your family.  In addition to this frugal approach to shopping, you can demonstrate how to plan economical meals, avoid waste, and use leftovers efficiently. When you take your children to other kinds of stores, explain how to plan purchases in advance and make unit-price comparisons. Show them how to check for value, quality, reparability, warranty, and other consumer concerns. Spending money can be fun and very productive when spending is well-planned. Unplanned spending, as a rule, usually results in 20-30 percent of our money being wasted because we obtain poor value with our purchases.

Allow your children to make spending decisions. Whether good or poor, they will learn from their spending choices. You can then initiate an open discussion of spending pros and cons before more spending takes place. Encourage them to use common sense when buying. This means helping them research before making major purchases, waiting for the right time to buy, and using the "spending-by-choice" technique. This technique involves selecting at least three other things the money could be spent on, setting aside money for one of the items, and then making a choice of which item to purchase.

Show your children how to evaluate TV, radio, and print ads for products. Will a product really perform and do what the commercials say? Is a price offered truly a sale price? Are alternative products available that will do a better job, perhaps for less cost, or offer better value? Remind them that if something sounds too good to be true, it usually is.

Borrowing

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Alert your children to the dangers of borrowing and paying interest. If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else's money for a specified period of time. For instance, give them the example of paying for a £499 TV over 18 months at £31.85 a month at 18.8 percent interest and show them how that compiles to a massive £575 once all the payments have been made.

When using a credit card at a restaurant, take the opportunity to teach your children about how credit cards work. Explain to them how to verify the charges, how to calculate the tip, and how to guard against credit card fraud.

Be cautious about making credit cards available to your children, even when they are entering college. Credit cards send a message: "spend!" Some students report using the cards for cash advances and also to meet everyday needs, instead of for emergencies (as originally planned). Many of those same students find themselves having to cut back on classes to fit in part-time jobs just to pay for their credit card purchases.

Discussion

Establish a regular schedule for family finance discussions. This is especially helpful to your younger children - it can be the time when they tote up their savings and receive interest. Get every member of the family involved in saving and planning for the next holiday vacation.  Other discussion topics could include the difference between cash, cheques, and credit cards; wise spending habits; how to avoid the use of credit; and the advantages of saving and investment growth.

With teenagers, it's also useful to discuss what's happening with the national and local economies, how to economize at home and the many alternatives to spending money (the many websites encouraging the recycling and bartering of items). All of this information will be important as they take on more responsibility for their own financial well-being.

Other related articles from MyEggNest

Activities to do with your children
Books on Teaching children about Money

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