The importance of teaching kids about money

The goal of financial wellbeing

Anyone who is in the fortunate position of having achieved financial wellbeing will tell you that it’s a real weight off their mind! Financial wellbeing is about having control of your income and spending, as well as having a good relationship with money. This means you can rest assured that not only is everything ok today but that tomorrow is looked after too.

Financial wellbeing is different from being ‘rich’. After all, my idea of ‘rich’ may be completely different to yours. It’s about understanding your needs and wants so you can ensure you have enough provision in place, whatever happens.

At Yorkshire Financial Planning, we talk a lot about balance. Living for today can be fun but your future self may not be laughing so having one eye on the future is a key part of achieving financial wellbeing.

Mental and emotional health has been undervalued in the past but nowadays, it’s talked about daily with an increased focus on work-life balance as well as the feeling of being able to have it all.

Clients today no longer want to work into their 60s with most wanting to retire in their 50s. Tomorrow isn’t guaranteed and post-Covid it’s fair to say that people want to live their lives to their fullest.  Reduced stress and anxiety are two of the benefits financial wellbeing brings. Not having to worry about how you will pay the bills or keep a roof over your head means that you can focus your time and energy on what’s most important to you.

Starting early: how to teach kids about money

If you want a life where you can have it all, then you need to be in control of your finances and you need to have a plan. You also need to start early. In my mind giving children the knowledge and skills they need is a great gift, yet many parents struggle to provide this vital financial education. That’s where we come in. We’re here to help you so that you can help them.

Teaching kids about money isn’t a one-off exercise. Day in, day out there will be opportunities in your normal interactions where you can develop your child’s understanding of money. It’s a bit like teaching your child how to cook. You get them involved in an age-appropriate way. This means that they might start out by shelling peas, but with regular involvement, they can progress to bringing you a bacon sandwich in bed on a Sunday morning!

In financial terms, it’s going from teaching them what money is to them eventually being able to pay their own bills.

So if you agree that financial education is another life skill, who do you think they’ll learn from? Yes, you’ve got it, they are going to learn from you. As a baby, your child learnt to talk and walk by imitating you. That’s why it’s fundamental to be a great financial role model.

Perhaps a good starting point is to reflect on this and assess what kind of role model you want to be and currently are. Are there any changes that you need to make? I feel like that could be an interesting future blog topic!

Lessons to learn

You may be wondering where to start when it comes to teaching kids about personal finance, especially if you are entirely comfortable learning about your own. Well, as with anything, the important thing is that you get on with it and do indeed make a start. I believe there are three key concepts to learn:

· Concept 1 – Material goods and services have a value

You can begin teaching this pretty early on. From learning to count to playing with toys, money can easily be explained to your children so they learn the concept of value. Play money is a fab way to do this and I’m guessing that a certain property-based board game could be available to most households to use. When your child asks for things, explain to them exactly what it costs and even show them with physical money if you can. I’m sure I’m not the only one who can recall being told “that costs a lot of pennies” when I was pleading for something!

· Concept 2 – How to save

Next up comes the introduction of saving as a concept to teach your kids how to save money. Usually, the easiest word to do this is to have a clear mason jar or a Piggy Bank into which money can be deposited. Let your child physically deposit the money themselves and encourage them to think about what they are saving for to deepen their understanding. As well as regularly counting the money with your child, also show them how to calculate how much more is needed until they can spend it on what they want. Later on, make opening their first savings account into a big event to be proud of to amplify the importance.

· Concept 3 – Money is earned

Last, but certainly not least, is the concept that money is usually earned. Introducing pocket money in exchange for completed chores makes this easy, and encourages your children to help around the house. You can start by suggesting easy chores such as putting toys away, pairing the socks or asking for help to weed the garden. Build this up gradually to washing the car, loading the dishwasher, or doing the vacuuming as they get older. Make sure you quality check their work and only pay out if you are happy with what they’ve done.

Once these concepts have been grasped, the education process becomes more simple as you can help them to make decisions about what to spend on. Knowing the difference between ‘wanting’ and ‘needing’ is a great lesson to learn. Impulse buys often derail budgeting plans, so waiting until they can afford something helps compound the learning element.

Use simple scenarios to get them thinking about the implications of spending. I.e. If you spend money on a comic now (short-term goal), how much longer will you have to wait to buy the new skateboard (long-term goal) that you really want? It will certainly get them thinking about just how much they want that comic!

As your child gets older help them to understand how their savings or bank account works. Explain to your child how they earn interest and what the benefit of compound interest is too.

And don’t be afraid to teach them about debt and how much they’ll need to pay in interest for borrowing money too. Giving them simple budgets to stick to are a great way of learning not to overspend. A bit of practical learning will go a long way and will help your child to remember the tricks and tips in the future. his could be a budget to do a food shop or time spent with you helping to balance the household bills.

Have some fun when teaching kids about money

My final tip for helping children become financially capable and confident into adulthood is to teach them how to earn money. A strong work ethic instilled early could be just what it takes to bring out their entrepreneurial spirit. Jumble sales, lemonade stalls, Saturday jobs for example, all encourage this concept of earning money so you can save for the things you want and need. I’ve just read an article about Prince George holding a cake stall to raise money for charity which is the perfect example of what I mean and doesn’t just teach your child about the concept of money.

Lastly, make financial education fun. Talking about money isn’t something to be embarrassed about. Whether you have financial wellbeing or not, there are lessons for your kids to learn. Be open and honest and above all, celebrate when you see them demonstrate the right financial behaviour and make good financial decisions.

I feel lucky that my dad taught me about money as a child. I knew when I left home how to budget and I knew that I needed to provide myself with financial security for the future. There is some merit to being a tight Yorkshire man, after all, as it means that I’ve learnt what I have. Thanks, Dad!

Now you know how to teach personal finance, how about reading up on how you can save money during the school holidays in our blog.

For more help and advice or to receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Yorkshire Financial Planning on 01482 275540 or complete our contact form here.