As the Money Advice Service reports that children’s money habits are formed from the age of seven – despite financial education not being mandatory in schools until age 11 – when it comes to earning, spending and saving, it’s crucial for parents to encourage smart habits from an early age. With that in mind, David Pugh, managing partner of Lemonade Money, shares his advice to help ensure our little ones become more financially savvy in the future.
1. Play ‘shop’ at home. Invest in toys, such as a cash register and pretend money, and stock shelves with everyday ‘groceries’ – cereal boxes, sponges, kitchen roll and biscuits. This develops children’s understanding of the value of money and that goods have to be paid for.
2. Similarly, set up a ‘restaurant’ with place settings and pretend food and money. After the meal, present a bill, count out what money is needed to pay for it or ask your child to be the cashier and give you change. This shows that more than just goods have to be paid for.
3. Ask toddlers to help cut out money-saving coupons (using safety scissors) and when at the supermarket, play ‘I Spy’, encouraging them to spot the discounted products on the shelves.
4. Supermarkets are the favoured place for temper tantrums. If you can, hold firm and only buy what is on your list, rather than what your child wants. This – while a painful process – delivers a clear message that money should be spent on ‘needs’ rather than ‘wants’, which have to be saved for.
5. Buy a piggy bank and set a savings goal; perhaps for a favourite toy or payment towards a day out. Discuss how if some pocket money is set aside it can be used for something special (a valuable lesson in our credit-dependent society).
6. Reward good behaviour/helping around the house with a small sum of money. Use stickers as ‘currency’ and a chart to keep track of the total. The reinforces the understanding that money has to be worked for.
7. Older children may prefer a reward system based on games; for example, doing household chores unlocks tokens which can be swapped for cash. Alternatively, the ‘chores’ could buy additional perks, such as a treat, mobile phone top-up or meal-out voucher.
8. Get children used to taking responsibility for their own money with a pre-paid pocket money card. Go Henry is an allowance card for children aged six to 18, with parental controls. It’s an easy and fun way to pay pocket money while teaching good money habits.
9. Set up a children’s savings account. It’s a great way of showing children how regular saving can generate extra money through interest – up to 4% in top savings accounts – and the minimum payment is typically £5 per month, so it won’t break the bank.
10. Encourage extra earnings. Additional income can be sourced from paper rounds, car washing, leaflet drops (from age 13) or working in a cafe or restaurant (from age 14). Working outside the home for an income prompts prudent money management and addresses concerns that two thirds of 16/17 year-olds cannot read a payslip and a third have never put money into a bank account.