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How to help your children manage money

Our ten ideas will help them throughout their life


Research shows that children’s lifelong financial habits – good and bad – are formed by the age of seven. So it’s easy to recognise that parents have a crucial role to play in introducing their child to the concept of managing money at an early age, to help equip them for when they grow up.

In addition to the long-term advantages, your child will be able to reap immediate benefits. The lessons involved in learning how to manage money can improve decision making, prioritisation, patience, responsibility and confidence as a child sets financial goals, works towards them and achieves them – as well as helping improve their maths.

The most successful approach will be unique to each family – but as a starting point, we’ve compiled some suggestions that you can tailor to suit your own children.


1. Talk about what money means to you personally

Firstly, why not make money an open topic of discussion to show how it’s an important part of everyday life?

You could ensure your child knows that it isn’t magically dispensed from cash machines – it’s earned from the jobs you or your partner do.

Explain that because it’s finite, it’s important to monitor and manage it so that as a family you can pay for your home, car, food, clothes and holidays.

Let your child see you compare prices or pay bills – and explain why you do this

2. Lead by example

When you refer to the cost of an item as you decide between various options, mention other factors too – such as quality – so your child knows that price is only one of many considerations, and that the most expensive option isn’t necessarily the best.

Don’t feel you have to give in to every demand for cash – help them understand that we can’t always have everything we want.


3. Explain the difference between wanting and needing

You could introduce the idea that it’s important to prioritise buying the things you really need before buying anything you only ‘want’ by evaluating adverts together. Are they really accurate? Is the product really an ‘essential’?


4. Choose purchases as a family

Involve your child in everyday spending. Let them check what you need to buy before your supermarket shop and run through your list with them. Once there, ask them to help you choose the best value buys. Explain that these may not always be the cheapest – a buy-one-get-one-free offer is only good value if you’ll actually use both items!

In a restaurant, ask them to help you check the final bill against the menu prices. Or, if you’re making a bigger purchase such as a mobile phone, explain how the same product isn’t the same price in every shop (and prices can change daily).

When making comparisons, there could also be other factors to take into consideration, such as selecting the most appropriate tariff and deciding whether to take out insurance against theft or damage, or potential extra expenses if a data allowance is exceeded.


5. Provide pocket money

As soon as they’re old enough to understand that money can buy things, consider giving your child a regular allowance so they can have their ‘own’ money.

It doesn’t have to be a lot, but should be enough to cover modest purchases such as magazines and sweets, and leave a little left over so they can learn to save.

There’s no right or wrong amount, but as a guideline, a recent survey showed these average weekly amounts:

£2.59 for 5 year olds, £2.94 for 6 year olds, £3.15 for 7 year olds, £3.51 for 8 year olds, £4.10 for 9 year olds, £4.64 for 10 year olds, £4.82 for 11 year olds, £5.65 for 12 year olds, £5.80 for 13 year olds and £5.91 for 14 year olds

Give them their pocket money at regular, consistent intervals so they can work out what their income will be over a specific period.

For a younger child, weekly is probably best. Older children, though, will have more opportunity to learn how to budget if they receive money monthly – in larger amounts that have to last longer.

Many parents increase allowances annually on their child’s birthday to allow for greater responsibility as they get older – such as paying for non-school clothes, mobiles or cinema trips with friends. If you have more than one child, you could ensure the younger child understands how theirs will increase as they get older too.

You could adopt a similar ‘allowance’ approach on holidays: give your child a set amount at the beginning of the holiday and make sure they know they have to make it last if they still want to be able to buy souvenirs and postcards on their last day.

Ensure both parents stick to the agreed allowance and, to help your child understand that money is a finite resource – for you and them – don’t give unexpected ad hoc payments for no reason.


6. Reward effort

While a regular pocket money allowance helps a child to budget, in addition to this many families agree a rate for doing specific tasks, in order for their child to connect effort with reward.

These tasks could be linked to saving money – ie cutting out discount shopping coupons or making sure a bedroom light is turned off when the room is unoccupied.


7. Show them how to allocate their money

You could introduce the subject of careful spending by talking about ways you make sensible decisions yourself (see point 2).

List your child’s regular spending with them (for example music, drinks or magazines) and calculate the cost. Explain that they should have some money left over after each allowance but that the exact amount depends on how much they choose to spend.

If you feel they’re old enough, you could work out a money plan with them that shows them how much they will receive over a certain period of time. Encourage them to mark up against this how much they aim to spend – they could keep receipts to help monitor this.

Explain that they will save any money they don’t spend. Let them choose how much they aim to save so they’ll know they have achieved their goals by themselves. Review the plan regularly so they can see their savings growing.


8. Let them pick a treat to save up for

To get your child into the habit of not spending all their money straight away, you could encourage them to think of something they really want (with your approval) that they couldn’t afford with a single allowance – and then save up for it.

The longer they’re prepared to save for, the more they will be able to afford. If they’re teenagers, their savings could partly have a longer-term goal, such as for university or a car.

Make sure they are aware of any ongoing costs on top of the initial outlay of their treat, such as call charges on a pay-as-you-go mobile phone.

They will love to see how money can quickly accumulate, even on modest amounts.

A saving of just £2 a week becomes around £8 over a month, or £104 over a year

They can use their money plan to work out how long it will take them to afford their chosen item if they stick to the spending limit they’ve chosen. Celebrate their achievement when they get there!


9. Encourage them to save

Recent research shows that 79% of children now put aside some of their pocket money – up 9% in just one year.

You could give your child their allowance in small denominations, such as five £1 coins rather than a £5 note, to make it easier for them to put money aside.

Arrange a special place where they can keep their money. A young child will love putting their money in a piggy bank or glass jar.

Opening an account in a grown-up bank or building society is also an exciting rite of passage

When you feel they’re old enough, shop around together for the best account. Weigh up considerations such as interest rates (which may go up or down in the future) and access periods so they can see they’ve made an informed decision.

Money saved over time can increase further through interest payments. These can be fun for children to monitor, even with rates that adults will recognise as typically being lower than at times in the past.

A savings account will provide interest of its own, but you could reward a younger child by contributing your own money depending on how much they save on their own.


10. Let them make mistakes

Learning from mistakes is an important part of being responsible. If the treat your child has saved for doesn’t live up to their expectations, don’t feel you have to buy an alternative. Or if they lose a five pound note, you don’t have to replace it – if you don’t, they’re likely to be more careful next time!


Make £5 Grow

Virgin Money’s enterprise programme, Make £5 Grow, gives children aged between 9 and 11 years old the experience of starting a small business using a £5 loan.

Now in its fifth year, 500 primary schools and over 22,000 pupils have participated in the programme.

It's easy and free of charge. Virgin Money provides lesson plans, resources and a loan of £5 per pupil. Pupils are split into groups and pool their money to design and develop a product or a service that they can sell.

The school keeps any profit made by the pupils' small businesses once the loan has been repaid.

Engaging, educational and great fun, Make £5 Grow delivers key elements of the National Curriculum. It also gives pupils an insight into how business works and helps them to build skills for the future, such as team working, problem solving, leadership, money management and creativity.

To find out more, or sign up online, visit Make £5 Grow  Link opens in a new window

 

Links to external websites are for information only. Virgin Money receives no income from them and accepts no responsibility for the website content. The information in this article is correct as at 12 August 2016.