Children’s money tips: A guide on teaching your kids good personal finance habits

Giving your little ones a strong grounding in the basics of spending, budgeting and saving can be vital to help them grow into financially confident adults able to easily manage their own personal finances.

Like it or not, kids learn their money habits from their parents and caregivers. So that’s why it’s important to get children used to making decisions about money from an early age. 

Research from the government’s Money and Pensions Service shows that children’s attitudes about money are well developed by the age of seven. 

What’s more, the massive impact of COVID-19 on household budgets means it’s never been more important for young people to get to grips with personal finance as early as possible.

Here are some things you can do to help your children get the best possible start on their personal finance journey. 

Start with the basics

The approach you’ll want to take when talking to your kids about money may vary depending on their age. 

For the youngest, start with the basics and get them touching and handling coins, notes and credit cards. This is a key first step in getting young children confident around money.

It may seem old fashioned, but giving small children a piggy bank can be a great way to help them get to grips with the basics of how saving works. This can also help you encourage them to save for something they really want.

The government-run Money Advice Service has some great tips on simple tasks and games you can play with very young children to introduce a series of concepts to them.

These suggestions include:

• Helping your little ones literally ‘count the pennies’ by putting lots of 1p coins and one coin of each higher denomination on a flat surface. You can then build a pile of 1p coins next to each of the higher value coins to show the difference in their value. Finally, take down the piles and ask your child to recreate them

• Regularly spend time with your child to count the pennies accumulated into their piggy bank to help them keep track of what they’ve saved

• When you’re out at the supermarket, take your child with you and make money-related decisions out loud in front of them. This way, for example, they can see how you might choose a shop’s own-brand product instead of a branded equivalent

• When you buy items, check the receipt in front of your child

Stuck at home? Get creative

While COVID-19 means that there are likely to be fewer trips to the shops, it’s easy to get creative at home to help your kids understand how to make decisions on spending money well.

For example, why not lay out a range of snack foods and put prices on each using post-it notes? Using money you’ve given them, your child can then make a choice as to which snack to ‘buy’ with their own money.

Board games can also be an enjoyable way for your children to get acquainted with financial concepts. The classic example is Monopoly, which introduces the little ones to learning about buying property, rent, mortgages and even going bankrupt!

Hasbro, the firm which makes the game, also has a ‘junior’ version especially tailored for kids.

Older players may also be interested in games like Payday, Settlers of Catan, and the Game of Life. 

If your little ones are slightly more tech-savvy you could get them to try using smartphone apps like Pigby’s Fair – an online game designed by Natwest to help young children get to grips with spending and saving.

The app does not require you as the parent to actually spend any money, nor does it contain any in-app purchases.

When playing the game kids go on a trip through an animated fairground where they can manage a stall, earn virtual money and deposit it at ‘Pigby’s Bank’. New levels are unlocked when savings goals are reached. 

Using pocket money to teach good behaviours

Giving your child regular pocket money can be a useful tool in teaching them the importance of saving and budgeting. Giving them even small amounts on a weekly basis shows that you have confidence in your child’s ability to manage their own money.

You can also offer them the opportunity to top up their allowance by getting paid to do chores around your home.

Seeing money in a physical money box or even a bank account (more on that below), can help young people understand many of the concepts that will come to define their relationship with cash as they grow up.

It’s worth regularly discussing with them how they feel about having the money, and what they might want to spend it on. If there is a particular toy or item that they want, help them work out a plan for their savings. 

One way of helping them track their progress is to get them to fill out a chart or drawing, like  an image of an empty thermometer, colouring in a little more each time they receive more money.

Get them interested in interest

While coronavirus confines most of our children to learning at home, going into a bank branch to help your child open their first current account or savings account is a little tricky right now.

But you could still pay them interest on the amounts they have saved up. By doing this you’ll not only be giving your child a grounding in the basics of savings interest, you’ll also show them how compound interest works.

It’s likely they’ll be very happy when they learn that they can earn interest on their interest! This type of practical exercise can be a great part of their home schooling experience.

How does interest work?

Digital tools for earning and saving pocket money

If your child is slightly older, there are also a range of options for paying them pocket money digitally. These products can differ in what they offer but the basic model for many of them involves issuing a prepaid card that a child can use to make purchases. 

With COVID-19 driving us towards using contactless payments, getting young people used to this kind of technology should be a key part of their journey towards better personal finance skills. As children grow older, these types of payment methods are only set to expand.

Here are some examples of the leading products out there:

GoHenry

GoHenry is arguably the most established provider of prepaid cards for children as young as 6 years old.

While the card comes with a £2.99 monthly fee, there is a range of decent functionality through the accompanying app and website, which allows parents to set spending limits, monitor what their kids are buying and where they are spending.

Parents can make one bank transfer into the GoHenry account once a month for free. Any further top-ups cost 50p.

The registered parent or guardian receives a text message every time the child uses the card. A parent can also limit how much their child can withdraw from a cash machine.

Like some online-only banking apps, the GoHenry app allows users to create saving goals, where a percentage of pocket money can be saved every week. Targets will show the child how far they have got to go to meet the savings goal. 

RoosterMoney

RoosterMoney is a money app and accompanying debit card which bills itself as a way for parents to teach their children about money in the digital age.

While the account has to be opened by a parent, a Rooster Card is available to children as young as six years old. The Rooster Card charges an annual fee of £24.99 per year, but offers a one month free trial. 

Alongside the standard functions that a prepaid card provides, there are a range of interesting extras that might be helpful for your kids.

These include the ability to set up an artificial interest rate within a saving pot (a dedicated space where money can be saved). This helps your child understand how savings work, with the ‘interest’ paid on whatever is in the saving pot coming from you the parent.

The app also allows parents to link a child’s pocket money to carrying out certain household chores. 

Earning money

Once your child has got to grips with the basics of how saving their pocket money can help them, they may be interested to learn about ways they can earn more money themselves. 

Aside from earning a little extra by carrying out odd jobs around the house, you could also ask them to gather up books and games that they no longer use and encourage them to sell these items on online auction sites like eBay.

The latter example can also help them understand how profit can be calculated once costs like postage and platform fees are taken into account. Doing this also helps you declutter your home!

For full details on how to get the most out of online marketplaces while staying safe, read our ‘Buying and selling with online marketplaces’ guide.

For older children and teenagers who are slightly more tech-savvy, you may also want to encourage them to investigate other ways they can earn money online.

Sites like MyPocketSkill offer young people the chance to earn money by carrying out a range of tasks from dog walking to language tutoring. 

Make sure to check a website out yourself first so that you feel comfortable with how your child is earning money.