Money matters: Talking finances with children

Money makes the world go around as the saying goes. But when is the right time to start helping your children to get to grips with pounds and pence?

Many parents may believe it’s better to ‘protect’ their children from money issues for as long as possible. They don’t want to worry them with discussions about debt and saving for their future or confuse them with talk of interest rates and mortgages.

But there is growing concern that millions of young people in Britain could enter adulthood unprepared to handle their money.

This could have dire consequences with experts saying a lack of knowledge puts them at risk of plunging into life-changing debt.

The government-backed Money Advice Service said a recent survey showed a ‘worrying’ shortage of money skills among the country’s children and teenagers.

Secure

Its research findings showed that the majority of parents were likely to overestimate the age at which they should talk to their children about financial issues including saving, bills and debt.

Experts say children have a higher chance of being financially secure in later life if parents involved them in discussions about money from as young as four.

When youngsters are exposed to money from an early age they are more likely to develop vital financial skills helping their ability to save, budget and plan ahead financially later in life.

However, children who are not included in these discussions, or do not have much experience using money, risk being left behind.

Kirsty Bowman-Vaughan, who is the Money Advice Service’s children and young people expert, says: “We know that parents might feel as though they’re protecting their children by not talking to them about money, yet helping children to understand how to save and handle money is one of the most important things parents can do to ensure their long-term financial security.

“The best ways to do this are through discussions, and allowing them to experience money and make decisions. That means talking to your children about money matters and letting them decide for themselves, in an appropriate way, how to spend money.

“Parents shouldn’t be afraid of starting to do this from an early age – that’s when it’ll have the most impact.”

But some parents can feel out of their depth when talking to children about money as their own financial insecurities may affect their confidence in getting the correct message across. The Money Advice Service recommends introducing them to money as soon as they start learning to count. When children are very young, money can be incorporated into their imaginary games, such as playing pretend shop or restaurant.

Help them to understand where money comes from by using simple language. Supermarket visits can be used as a way to demonstrate how much things cost and show that you can get cheaper or more expensive versions of the same product.

This is also an opportunity to discuss how you can shop around for the best price. Instead of buying them a treat, give them a small amount of money to buy their own but explain that once the money has gone, it’s gone.

Point out the price labels, make sure they see you paying and show them the receipt afterwards so they can see that every item adds up.

Providing pocket money in lower denominations can help them get used to recognising and handling different coins.

When children are older getting them to earn money by doing chores can help them to develop a good work ethic and to understand that money needs to be earned.

If they receive cash as a birthday or Christmas gift then this is an ideal opportunity to bring up the benefits of saving. If there is something they want don’t rush out to buy it for them, tell them that they can use their own money.

If it’s a more expensive item, explain that they need to be patient when saving up and that they can make choices about how to spend their money.

Older children can be involved in discussions about family budgeting and saving. It could be by telling them how much money the family has for a week or month and then going through how the money is spent.

Saving

If you are saving for a holiday then tell them how much you are putting aside each month. You could even have a chart on the wall so they can watch as you move nearer your goal each month and this will help to demonstrate to them the importance of saving too.

It is also important to talk to them about household bills so they understand that things like electricity, water and the internet all have to be paid for each month. Explaining key terms such as direct debits and monthly tariffs will also benefit them in the future.

Ms Bowman-Vaughan says: “There are many ways that parents can start to encourage their children to interact with money from a young age. We know that children learn best when they gain practical experience with money, and allowing them to make decisions and learn from their mistakes lays the foundations for better money management skills as they grow up.”