While most of us expect our children to display good manners from an early age, we’re not so mindful about their financial habits. Here are a few fun ideas to get started.
By around the age of seven, children will already have formed their money habits, either good or bad, warns the Money Advice Service.
So developing habits that will help with saving money, such as delayed gratification and sharing, as early as possible can help foster your child’s natural thought process and ensure they have the appropriate decision-making skills as adults.
However, this can be hard as many parents and grandparents fear talking about money or may not be confident on money matters themselves.
A study by M&G Investments shows just 17% of parents or grandparents have discussed investing or borrowing with their children or grandchildren and just 50% have discussed the importance of spending money wisely.
“We know that lots of parents and grandparents regularly save and invest for their children or grandchildren,” says Ritu Vohora, investment director at M&G Investments.
“But alongside a nest egg, it’s just as important to build the financial knowledge they’ll need to prosper as adults.
“Getting started early to instil good money habits will pay dividends when they’re handling everything from pocket money to credit cards, loans, pensions and mortgages later on.”
To help, here are seven ways to set your child on the path to becoming money savvy by age seven.
Don’t be afraid to start young
Money lessons have to be relevant. A seven-year-old doesn’t need to understand what a mortgage is yet, but parents can encourage kids to pay for things in shops so that they get into the habit of handing over notes and coins and checking change.
“It’s more about fostering a child’s executive functions,” Jonquil Lowe, senior lecturer in economics and personal finance at The Open University, says. “You are creating the personal traits that will be useful later on rather than necessarily teaching personal finance by age seven.
“It is about teaching the idea that sometimes it is better to wait or to plan rather than do things on impulse.
“The earlier you start embedding these ideas, the better.”
Use pocket money to encourage a savings habit
Children who receive pocket money now get on average £7.04, according to the latest Halifax pocket money survey.
But rather than just handing over the cash there are clever tricks you can play to embed good habits, such as having one piggy bank for treats and one for saving. Ms Vohora also suggests pocket money matching.
“This is a great way to encourage children to save by doubling up on every pound they invest,” she explains.
“If a seven-year-old agreed to put aside £5 of his or her pocket money each week, and both parents and grandparents matched this amount, they would save around £780 a year.
“If this amount had been annually invested in the FTSE All Share Index over the past 11 years, at the age of 18 they could have a pot of more than £14,000.”
Make use of technology but don’t forget cash
The rising popularity of contactless payments means some children, and even adults, may rarely come across actual physical money.
Kids are growing up surrounding by technology, and you can use this to their benefit. There are apps you can use with your children, such as Rooster Money (see box above), which gives children a pocket money account that parents top up and track. Children can see how much they have in the palm of their hand and parents can monitor how much is being spent.
But even James Kassam, of Rooster Money, says that it’s important for children to understand the look and feel of money too.
“The earlier you can get children into handling money – which can just be counting out combinations of 1p, 2p and 5p pieces, the greater their understanding will be,” he says.
“As soon as they’re old enough to know not to put the coins in their mouth, they’re old enough to start learning what they are.”
Explain needs versus wants
Most parents will have heard their child tell them they need a certain toy, but teaching them the difference between ‘needs’ and ‘wants’ from an early age can help limit impulse purchases in later life and ultimately teach the art of budgeting and setting targets.
“Teaching your children how to budget will help them apply the same approach when they are older,” Rose St Louis, savings expert at Zurich UK Life, says.
“Helping them to set aside a certain amount every month will not only give them a lesson in budgeting, but also teaches them the value of the items they’re buying.” She says setting both short- and long-term goals can help a child focus on budgeting.
Use storybooks at bedtime If you are tired of reading The Tiger Who Came to Tea or Snow White, there are some great children’s books that help kids learn about money. These include Daisy and the Trouble with Piggy Banks by Kes Gray, Save Your Acorns by Robert Gardner, and Isabel’s Car Wash by Sheila Bair, where the main character sets up a car-wash business to save up for a doll.
Play shop
Traditionally, children have always learnt through play. Board games, such as ‘Pop to the Shops’ can help to teach children the value of money while having fun. Playing the customer at the grocers or bakers, they have to decide whether an item is worth its price or not.
You could also take your children to London attraction Kidzania – or see if there are any alternatives locally – where anyone aged four to 14 gets involved in running a local economy by taking jobs such as a doctor or fi refighter. They will earn ‘kidZos’ to spend on leisure activities or to save up and open a savings account at the Bank of Kidzania.
Play chess
Chess is also good for boosting kids’ mathematical ability.
“Children younger than seven playing chess early on with parents can benefit from that head start in developing the foresight, which will help them later on in investing wisely and thinking ahead to make prudent financial decisions,” says Malcolm Pein, director of the English Chess Federation.
‘I had to make my daughter understand that she couldn’t buy all the toys’
Oxfordshire-based animator Wes West, 36, found it hard to keep saying no each time his four-year-old daughter Martha asked for toys while at the shops, so he now uses the RoosterMoney app to pay pocket money.
“It can be hard to say no when the toys are just a couple of pounds but the more I bought, the more she would expect,” Wes explains.
“I wanted to show that I don’t have an infinite amount of money and the Rooster app does that.”
The app now automatically adds £2 to Martha’s Rooster account every Saturday. “It’s a simple way to tally up your child’s pocket money, without the need for cash – which they always lose around the house.” “Because it syncs across devices, I always know exactly how much my daughter has in her account when we’re out of the house,” he adds.
“My daughter is only four, so she’s not great at saving yet, but the app has definitely helped to introduce the concept and I’m looking forward to using more of the features as she gets older.
“Teaching kids about the value of money is one of the most important things you can do as a parent – without this, kids can end up being spoilt and ungrateful.”
“Playing Pop to the Shops helps Elsie to understand about money”
Margareta Jonsson (pictured above), 42, started introducing her seven-year-old daughter, Elsie, to board games such as Pop to the Shops and Monopoly after she used to get upset when her birthday money soon disappeared.
By playing Pop to the Shops at her home in Charlton, south London – where she has to make your money stretch to fi ll your basket at the greengrocer, bakery, corner shop and dairy – Elsie now has a better grasp of how money works.
“Over the year playing games and talking about money, Elsie has learnt you don’t have to spend it all at once,” says Margareta, a graphic designer.
“I have really seen a change in her attitude. She learns about different coins and now understands it isn’t good to get the most expensive item straight away. She also learns to count money at the same time and values getting to the bank on her turn to earn an extra 20p.”
These lessons have also transferred into real-life shops. “Elsie previously wanted lots of fidget-spinners, but has now learnt if she buys too many she won’t have any pocket money left,” Margareta adds. “It is very important to teach kids about money from a young age, or they will just spend it all.”
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