How To Teach Children About The Value Of Money

Why Is It Important To Talk To Children About Money? 

“With no prior financial knowledge, often it can be difficult for children to understand that there isn't an endless supply of money available every time they want to buy something. It’s for this reason that it’s important to teach kids about money, including how it works, the value of it and how to spend it wisely and efficiently. Educating your children about the value of money is key to building their confidence with cash, teaches them how to manage their finances more effectively and helps them achieve financial stability. Those who learn about money management throughout childhood tend to be able to manage their finances more successfully later on in life.” – Philip Stubbins, Managing Director at Money Expert

“In the Chinese culture there is this thing called third generation rich. The first generation makes the money, the second generation spends the money and the third have to make it back again. When I go shopping with my daughter, who is four and a half, I make sure we never use Apple Pay and I never take a credit card. I make her take her pocket money, and she has to hand over the physical cash and take the change. That teaches her about the value of money and that there’s only a finite amount.  It’s important to teach children about money because money is freedom.” – money mentor John Lee

When Should You Start Talking To Them About It? 

“It’s absolutely vital to start talking to your kids about money as early as possible. A study by the London Institute of Banking and Finance in March 2022 found that over 70% of young people wanted to learn more about money and finance in school. Children of all ages can benefit from learning how to manage their finances early on in life, and as with most things, it’s experiences at home that have the biggest influence. Research also suggests that how we behave around money as adults is learned during childhood from observations we make as we’re growing up, whether that’s from our parents, friends or from television.” – Philip 

“I started talking to my daughter about money when she was two years old and could barely understand the issue at hand. One of the toys I bought her was a cashier’s till and we pretended we had our own supermarket, so she could start understanding the concepts of buying and selling. Everything has a monetary value, so in my opinion the earlier you can start exploring these topics, the better.” – John

Are There Any Monetary Terms Or Phrases You'd Avoid Using In Front Of Children? 

“Try not to use phrases like “Money doesn’t grow on trees,” or “Money doesn’t buy you happiness,” or “Money is the root of all evil.” Money is good but money amplifies who you are, so you want to try to disassociate those negative connotations. When I was a kid, if I saw a really incredible car like a Lamborghini, someone would say they’re probably drug dealers. Now, I realise it’s best not to apply negatives to money – it’s just currency.” – John 

“Terms such as ‘retail therapy’, could suggest that spending money can be classed as a comfort and quick mood booster if you’re feeling down. It can lead to children believing that spending money leads to happiness, which can result in them spending unnecessarily. Sometimes after a tough day, we might want a treat. For some this means spending money on things we want but may not necessarily need or be able to afford. You should also avoid using terms around spending like “I work hard or I had a bad day, so I’ve earned this” to justify spending. This could be a dangerous habit to form and something we don’t want our kids mimicking.” – Philip

Is Pocket Money Still An Effective Way To Teach Children About The Value Of Money? 

“Whether you’re giving physical cash or opening up a bank account, pocket money is still an effective way to teach children about the importance of finance. It gives them the opportunity to experience having their own money, and can teach them the value of it and how to be smart with their spending. If they’re low on their own money and are unable to buy something they want, this will teach them to be smarter about spending in future.” – Philip 

“Pocket money teaches children that there is a reward for doing some kind of job, too, so if you go and tidy up your toys, or go and do the dishes or help daddy with some of his work, you’ll get something in return. Anything like this is a good lesson for children to learn.” – John

Could You Share Some Pocket Money Tips Such As When To Start, How Much And Any Useful Resources?

“Many parents choose to give their children pocket money when they start school, but ultimately, it’s up to them or a carer to decide when it’s the right time. However, if you set a specific amount, make sure you stick to it as you may relay the wrong message that money is easily given if you simply ask for it. Start with what your household can afford, such as a few pounds per week, increasing it as they get older or base it on household chores and give them an amount per task. Not only will this teach kids about earning money, but it will also help ease any burden on the parents for keeping the house clean and tidy. It can be hard to keep track of your child’s pocket money physically, so it might be easier to monitor them through an app on your phone. You can even use some of these to reward them for chores while teaching them about budgeting and responsible spending. There are a number of apps out there that are available to use:

• NatWest Rooster – This is free and available for ages 3 to 18. It comes with a separate children’s app and allows you to keep track of how much money each child has. However, in order to get a debit card for your child and track chores or tasks, you’ll need the paid for version which is either £19.99 per year or £1.99 per month. 
• Revolut <18 – A Revolut account is a prepaid visa debit card which allows your children to manage their own money within their own Revolut <18 app. It’s ideal for ages between seven and 17 and there’s no fee for topping up your child’s account. Children can choose from a selection of colourful cards and it comes with their card number on the back to keep their details safe. The free version comes with one basic account, however premium and metal customers can get between two and five accounts with the £2.99, £6.99 and £12.99 plans. This type of account is also good for use abroad. 
• GoHenry – This is a paid for pocket money app for parents to teach their children between the ages of six and 18 about money and costs £2.99 per month, although you do get a free 30-day trial. This is easy to navigate and allows full access to your child’s account and spending habits. You get one free load via BACS, direct debit or standing order but after this there is a 50p charge.” – Philip

How Should You Introduce The Subject Of Saving/Budgeting? 

“It’s never too early to start teaching your children about saving and budgeting. When you’re out shopping with your child, this can be a great time to introduce and discuss how to keep prices, value and budget in mind. Teaching them that just because you want something, doesn’t mean you need it right now. Christmases and birthdays often result in large amounts of money for children and while it can be tempting for them to splash out immediately, this could be another opportunity to teach your children about saving. You could consider opening a savings account for your children when they’re young and explain what it can be used for, not just for what they want now but for things like cars and moving out in the future. 

“An instant-access child savings account is perfect for parents who want to deposit and withdraw money in a bank account for their children at their own leisure. It’s an ideal way to encourage your child to get into the habit of saving money too. The downside to having convenient access is that these types of accounts don’t offer the best interest rates on the market, compared to a Junior ISA. Junior ISAs work in a very similar way to normal ISAs - they are tax free and have a maximum deposit limit each year. The annual deposit limit for junior ISAs is currently £9,000, a lot lower than the allowance for a standard adult ISA. The account cannot be accessed by the child until they reach 18 years old, so make sure that you only save money that you’re sure you won’t need to use sooner.” – Philip

How Or When Should You Look Into Getting Children Their Own Bank Account? 

“Opening their own bank account is a key step towards financial independence for any child and allows them to manage their own money safely and securely. Children can open a current account from as young as 11, although some are restricted to those over 16. Many prefer giving cash as pocket money, as it can be easier to manage and can visually help them with the value of money. However, a card is a lot safer than cash and the fact that parents can monitor their spending is a big draw. Bank accounts, compared to some of the pocket money apps mentioned earlier, don’t come at a cost either.” – Philip 

At One Point Should You Let Children Fully Manage Their Own Money? 

“I’ve created an HSBC account with sub-accounts which then I divide into an education fund, a play fund, etc. for my daughter. When she is five or six, I will let her spend from the play fund and go bankrupt! This way, the next time she wants to access that fund and there’s nothing in it she’ll learn that she has to do some jobs and make some more money before she can go shopping again.” – John

How Should Parents Respond If Children Appear To Make A Mistake With Their Money?  

“Don’t be too hard on your children if they make any mistakes when it comes to their money – for example, if they’ve overspent and have none left. They’re bound to make mistakes when they’re learning, especially if you aren’t always around to see what they’re spending their money on. You should use times like these as an opportunity to teach them that now they’ve overspent, they’ll have to wait until they’ve saved up before they can buy things or go out with their friends. If you give them more money, they won’t truly learn the value of it and will continue to make mistakes.” – Philip 

When Should You Start Talking To Them About Topics Like Credit Cards, Loans Or Even Mortgages? 

“Interest rates, APRs, mortgages and credit cards can be confusing for adults, let alone children. Legally your child can’t open a credit card until they’re over 18 and they won’t be able to get a mortgage while they’re young but it’s important to start discussing these things early. Consider talking to them on these subjects from their early teens, if they haven’t already asked you about it. Many children might be excited at the prospect of a credit card or buy now pay later type scheme, but it’s important to discuss this early so they learn to be smarter with their money. You could even allow them to borrow money from you to highlight how loans work. Introducing the concept of borrowing early on can help your child understand more about money and could prevent children from getting into financial difficulty later in life. It also helps to talk about their credit so they can start building their credit as soon as they reach 18. Having a good credit score can impact many things like getting a car or a home in the future, so it’s worth having these conversations while they’re young.” – Philip 

Finally, How Can Parents Model Responsible Money Habits For Their Children? 

“It’s important to be a role model when it comes to building good money habits. If you have a spending limit, stick to it when you need bigger items like a new car or a new sofa. It can help to explain how you need to save up for these purchases and how you might set a budget when shopping for these items. When it comes to pets, for example, it could be worth outlining that there’s an initial cost and then additional costs for things like food, insurance, vet bills and grooming. It can help to take your children shopping too. Write a list at home together and then count it as you go to show them how you’re budgeting. You could also speak out loud and explain why you’re buying certain items – own brand versus branded, for example, and how it may be a cheaper option. It’s important to have open, honest and regular conversations about money with children. They don’t need to be overly serious but discussing saving and spending decisions as a family is a positive way to keep them interested and involved in personal finance from a young age.” – Philip 

For more information visit JohnLee.com & MoneyExpert.com.