Louise writes for MoneySupermarket, a price comparison site in the UK dedicated to saving households money. As she teaches her 2 year old daughter about money, she attempts to educate her 25 year old husband at the same time!
Think back to when you were a child. Did you get an allowance? Did you have one of those pretend shops with the play money? Did you sit around with your family on a Sunday night and play Monopoly?
If so, you were getting your first lessons in money management. Your parents may not have realised it at the time but those innocent games took root inside your impressionable young mind and helped you take your first steps into the world of personal finance, well on the road to being a financially sound adult.
…At least, that’s what happens in an ideal world. The reality is that many people grow up without a sense of budgeting, saving or long term financial planning, either because they’ve never had that habit from being young or they’ve forgotten the lessons they learned from those simple games.
I’m of the firm belief that no child is too young to learn money lessons. Well, almost no child – I wouldn’t try to teach a 6 month old about saving a percentage of her allowance to buy that special toy, but you know what I mean!
2 – 7 years old
My daughter is two now and she’s already learned what saving her pennies means. Every time her dad or I have a few bits of spare change in our wallets at the end of the day, we give it to her, asking her what she should do with it. She immediately replies “bank”, meaning her piggy bank. It’s a clear one so she can actually see the number of coins rising, and she knows that when it gets up to a certain point she’s allowed to take the money out and choose herself a special gift from the shop.
OK, it’s not teaching her to work for her money but that will come when she’s older…
When she gets to about 4 or 5 we plan to reward her when she picks up her toys herself or helps Daddy with the gardening. Not too much; I don’t think children at that age need a huge allowance, but just enough to help her feel like she’s done a good job. And of course we’ll be encouraging her to save this allowance if she wants something.
8 – 11 years old
By the time she turns 8 or 9 we’re going to open a savings account for her, and let her monitor how the money is growing by the beauty of online banking. There’s lots of savings calculators on the internet which show the amount of interest you can earn based on the AER, so this will be a great way to demonstrate what interest actually is.
At this age she should also be able to make better decisions about her spending. Whenever there’s some luxury or frippery I want I always force myself to wait for at least a fortnight rather than buying it there and then. Usually, by the time the 2 weeks are up I no longer want the item and I’ve saved myself the money.
Our daughter will be taught the same financial procrastination and hopefully it will not only stop her wasting her money on pointless frivolities but also teach her patience – making Christmas time a little easier on us all!
As we head into the dreaded teens we’ll be encouraging her to get a weekend or after-school job, or even volunteering at a local community group. The latter may not be paid but hopefully it will teach her that it’s not just money that makes things worth doing.
We’re fully prepared for the typical teenage mentality of withdrawing at The Bank Of Mum And Dad but when this happens, we shall tell her kindly to earn the money she wants either through chores or her job while steeling ourselves for the tantrums.
A few more tips:
If you’re a couple you both need to be in firm agreement that you won’t give your stroppy teenager the money they ask for just to avoid an argument. Be consistent too; don’t give her money on a whim one day then say she has to work for it the next.
If you have close family who are a little too free with their finances, ask them not to give your child money without checking with you first. If necessary you can keep it safe for them and dish it out on special occasions like birthdays or a really good report card.
If you’re unsure how much allowance to give, check with other parents to see what they give, and try to find out how much the usual things your child would buy actually cost, and adjust the amount accordingly. It’s all very well telling them to save for their treats but if it’s going to take them years at the current rate of allowance they’ll just get demotivated.
When giving them their allowance ask if they’d like to save a percentage of it, rather than all or none. This will help them to see that they can ‘have their cake and eat it’; they’ll have some to spend on what they want that day, and still be saving towards the bigger treat they want too.
Finally, if you can afford it, consider paying their allowance by direct bank transfer. Tell them that the money in their account has to last them the full week or month. Be on hand to offer budgeting tips whenever needed!