Talking to kids about the value of money

After seeing their six-year-old son’s birthday list, Liz and Dan have realised it’s high time they started teaching Archie about the value of money. It’s true they both have reasonably well-paid jobs and only the one child but, even so, a Saint Bernard puppy, a quad bike, a horse and a life-size dalek don’t come cheap. So, what can Liz and Dan do to ensure Archie doesn’t end up bankrupting them before he goes to high school?

Pocket money

Archie is nearly seven - the age when most parents start giving their children pocket money, according to research by Barclays. And the bank says this is a great time to start teaching youngsters about the value of money. By getting Archie to earn his dough by doing household chores, Liz and Dan will help Archie appreciate the effort that goes into earning money and encourage him to develop a strong work ethic.

Pocket money can be paid in cash or using a prepaid card. There are a number of cards available that are designed specifically for youngsters from companies including GoHenry, Osper and HyperJar. A pre-paid card could also be a gentle way for Liz and Dan to introduce Archie to electronic payments and the world of online banking.

Talking about money

By talking to Archie about money and what they spend it on each month, Liz and Dan can help him to appreciate the kind of ongoing financial commitment involved in buying something like a Saint Bernard puppy or a horse. Archie’s probably too young for them to go through their entire household finances with him. But they can start with a large sum and show him how quickly the figure falls as they tick off all their monthly bills.

Showing Archie how they budget provides a good opportunity to talk about the difference between wanting something and needing something. This will also allow Liz and Dan to introduce the benefits of saving as a way of affording treats and luxuries, after paying for essentials.

Making saving visual

Barclays suggests that making it easy for children to visualise how it’s possible for money to grow can help get them excited about saving. Liz and Dan could do this by giving Archie a clear jar to turn into a homemade piggy bank. Alternatively, they could set up a savings account so Archie can go online to see how additional deposits and interest add up over time.

Budgeting for a big day out

Research by the Bank of England found only a quarter (27%) of youngsters in the UK enjoy school lessons about money. The study revealed kids thought using real money in real situations would help make learning more fun.

Archie wants to take a couple of friends to the zoo for his birthday. This offers a great opportunity for him to use money in the real world. Putting Archie in charge of the budget for the trip may help to increase his appreciation of the value of money. Liz and Dan should agree an amount Archie has to spend and ask him to think about how he’d like to use that money. They’ll need to remind him of all the things that will have to be paid for including fuel, entry tickets, food and drink etc. Allowing Archie to take the lead as much as possible during the trip – by handing over cash or holding up cards to make payments – will help boost his financial awareness and hopefully make learning about money more engaging.

Key takeaways:

• Giving children pocket money for doing household chores can help them appreciate the effort that goes into earning cash and encourage a strong work ethic.
• Talking to children about money helps them to understand budgeting and the difference between essentials and luxuries.
• Making it easy for children to visualise how their money can grow may encourage them to save.
• Putting children in charge of budgeting for a big day out can boost their financial awareness and make them more comfortable handling money.

Carl Goulty is a Financial Planner specialising in Investments, Pension & Retirement Planning and Financial Protection. He has a special interest in advising clients from the Life Sciences Industry.