Money and younger children

Anna Gosling

‘Money and children’ is a topic that seems to be plagued by over-complicated methods and guides that claim to gear children towards investing in stocks and shares by the time they are six years old.

The truth is, there are only a handful of key lessons which you need to teach your child which will enable them to navigate the world of money responsibly by the time they become a teenager. I think the key is to stick to the basics – don’t overcomplicate it or try to inundate your child with too much information at once, because this will only confuse them.

I think the most important things to teach your children when it comes to money are saving and budgeting, because these are skills that they will greatly benefit from in adulthood. I think one of the best ways to do this is by introducing your child to a small allowance or pocket money. This is a simple yet engaging way of introducing your child to living within their means and budgeting, and you can also introduce them to the idea that saving can bring great reward.

Start off with a relatively small allowance, depending on how old they are. I would suggest around £2-5 per week, because this means that they have enough to buy something relatively small as soon as they are given their pocket money but have the potential to buy something much more exciting if they save.

Get into the habit of reminding them of this if they go to spend all their weekly money on one item – perhaps point out a bigger toy and suggest that if they saved their money for a couple of weeks, they could afford it. Also remind them of the fact that they now have pocket money if they ask you to buy something non-essential for them, like a toy or some sweets. This will further instil the idea of living within their own budget.

“Children only need a relatively basic understanding of the concept of money. Don’t feel they need to be a financial guru before they leave primary school.”

Another idea I’ve seen is saving with rewards, because this introduces children to the concept of interest.

With interest rates so low at the moment, saving with rewards provides a way of making the concept of interest meaningful for your child. Perhaps sit your child down and explain to them that if they leave a small amount of their pocket money (e.g. £4) alone for a month, you will add 50% (e.g. £2). Not only does this reinforce the idea that saving money is a positive thing, but it also introduces them gently to the concept of investment returns which will be extremely useful for them later on.

A lot of parents seem to find the prospect of talking about money with their children quite daunting, and it is natural to want to shield them from a topic that is quite serious and want them to just be able to have fun. But talking about money with your children doesn’t have to take over your or their lives – children only need a relatively basic understanding of the concept of money. Don’t feel they need to be a financial guru before they leave primary school.

The most important thing is letting them still be kids while giving them subtle lessons which will guide them towards a good understanding of money and responsibility.