Teaching your child money sense
It is a sad but true fact that many of us go through life without ever being able to look after our money effectively. A key reason is that no one taught us anything about managing our finances when we were kids. So how can you help your child understand some of the basic facts about money?
Learning about money
Probably the most important thing to learn for any kid is the relationship between wanting something and having the money to buy it. Linked to that is the need to “earn” that money.
Here are the ages at which a child can start learning about money – and the kinds of things he or she is probably able to learn at that stage:
Age four to five
What money is and what it does: the connection between small things your child might want and the money needed to buy them.
Age five to six
Where money comes from: rewarding good behaviour, or even small tasks, with money that can be earned. Pocket money is, in fact, a golden opportunity to teach your child about money – but make sure you agree what it can be spent on.
Age six to eight
How to build up a nest egg: setting aside part of the money they have received, be it from grandparents, earned or pocket money, in order to pay for bigger things they want to buy. One way to do it is to have separate jars for spending and saving.
Age eight to eleven
How to use external savings accounts: opening a building society or similar account, perhaps setting aside a small weekly or monthly amount and keeping track of it with a deposit book. Also, it allows children to understand about interest rates and how they can earn interest on their money.
Age eleven to fourteen
How money works: wider issues to do with money, initially simple things like borrowing and debt, moving on to loans, tax, and so on. The aim is to mix together personal questions with wider money issues.
Age fourteen to eighteen
The power of money: how companies make profits and losses, what retirement is and how to pay for it. At this age, a child also needs to understand some specifics about personal budgeting, overdrafts, credit cards, bank charges and so on. It may be time to switch from weekly pocket money to a monthly allowance. Also, you may want to help them earn money for themselves.
Where money lessons can be learned – and taught.
It is probably quite daunting as a parent to feel that you may responsible for teaching your child about money. Luckily, you are not alone - schools and their teachers are a vital part of the process.
They are required to teach kids about so-called financial capability as part of the National Curriculum. This includes:
- understanding budgeting, how a bank account works, managing credit and debt, planning savings and investments, how to choose between competing offers
- a basic knowledge of taxation, why we pay direct and indirect taxes, understanding basic economics and how government raises and spends money
- Wider business financial skills.