Children pick up some strange ideas about money from adults. They watch us fill up a supermarket trolley then all we do is hand over a piece of plastic – and maybe even get a wad of notes in return if we've asked for cashback. It's probably not their fault that they think the supermarket is paying us to take stuff home. And it's no wonder that when 15 year olds are asked how long it would take to pay off a £3,000 credit card bill if they just paid the minimum amount each month, they think it's about a year. It's actually 40 years. As parents, we tend not to talk about money: it can be seen as a bit vulgar and we don't want to burden them with "adult" worries. As of September 2014, financial education is on the secondary-school curriculum, but it takes a lot more than an hour or two to teach financial literacy – vital in an age when the average household's credit card debts/overdrafts are predicted to reach £10,000 by the end of 2016. "Money can still be a taboo subject in the UK," says Steve Stillwell of financial education charity Young Enterprise. "A survey of children by Halifax last summer found that young people do think about money and are worried about it – they actually want to talk to their parents about it." So here's how we can teach children of all age groups about managing their money… Ages four to 10 Talk about money Don't be squeamish: explain how money works, how adults earn it and have to work out how much they can afford to buy with it – and that banks aren't giving you free money when you visit the cashpoint. Play games involving money such as shops or board games like Monopoly to unleash their inner stockbroker/property developer. Let them hand over money in shops and count the change; take them shopping for their lunch box and work out how much each item costs. Get into good habits with pocket money Give pocket money from five years old, or at the latest seven, as research shows a child's attitude to money is fixed by the age of seven or eight, which is sobering. Cash is best at this age so they can touch and feel it, and begin to understand the concept of coins and notes. Avoid giving a token £1, which won't teach them much (other than you can't get much for a pound). The average amount in the UK is £6.35 a week for eight to 15 year olds. Don't forget to give it regularly. One option is Roosterbank, designed for children aged six and above, a kind of online virtual piggy bank where you keep track of your child's money via an app. You can add money (when pocket money is due or they've completed a chore) or take it away (when they buy something). Start the saving bug It's never too early to learn to save. Ron Lieber, author of The Opposite Of Spoiled (Harper, £18.99), recommends having three jars for your child's pocket money: one for spending, one for saving and one for giving to charity. It's a graphic way to see where their money is going. Try for a 60:30:10 split. You can give nature's big spenders a powerful incentive to save by promising to match anything they manage to save pound for pound or (if that's too generous) paying them interest on their savings jar. Was it worth it? Get them thinking about what they've bought and whether it was worth it by dragging out all their "must-have" toys and asking them how they rate them now. Was each one worth the money? Would they still choose it? Did they only want it because friends had it or it was on TV? Go to the shop and look at any toy they say they want so they can really examine it and find out if it's value for money. Ages 11 to 15 Set a realistic allowance Gradually move from weekly pocket money to a fortnightly then monthly allowance by 13 to 14, says Jonathan Self, author of The Teenager's Guide To Money (Quercus, £8.99) – 14½ is the average age for a monthly allowance. Be clear about what it needs to cover (toiletries, presents, cinema) so it's realistic. Give extra for well-completed chores. But don't bail them out if they've made a bad decision. "My son went without a winter coat for two months because he spent the money for it on a concert. As a result, he became extremely astute about balancing his budget," Stillwell says. "It does pay to be a bit harsh on this, even though it's difficult. Because, 'Dad, can you lend me some money?' really means, 'Dad, can you give me some money?' It's important they learn to save up for trips and treats and plan their spending, rather than using the Bank of Mum and Dad every time they run out." Track their money It can be hard to keep track of your budget when so many purchases are made online – on gaming and downloads – which is where a pre-paid card such as GoHenry or Osper can be useful. Parents load the card (for a small fee) and the child can buy online or take cash out. "They can keep track of what is coming and going from their account via a mini banking app," says Hannah Maundrell, editor in chief of comparison website money.co.uk. "It puts them in control and it's like a little game. If they get their allowance on the same day each month, it's like getting a wage and they can plot how to make it last." Open a savings account Shop around for a savings account for them – some children's accounts have interest rates of four to six per cent. "Get them involved in choosing it: go on the comparison websites and explain how interest works so they really feel involved in the process," says Maundrell. "Get them into the habit of putting some of their allowance aside as savings – say 30 per cent." Trade down on brands Teenagers can be naive consumers. Parents can help them manage their budgets by encouraging savvier habits such as trying cheaper brands until they find the cheapest acceptable one. On the Barclays Money Skills website the Want or Need game gets teens to analyse a purchase, such as the latest iPhone, then how they are going to save for it. Age 16-plus Talk credit Half of England's teenagers have some kind of debt by 17, so it's vital for parents to explain how credit cards work: it's amazing how many teenagers think it's practically free money. "When I turned 18, I went out shopping with my friends and one of them took out a store card at Topshop, then realised she had spent £300 and had no way to pay it back," recalls Maundrell. Explain compound interest and list the worst kinds of credit: pay-day loans, store cards and student credit cards, which can have interest rates of 18 to 25 per cent. Get saving – and investing From 16, children can have their own ISA (it's 18 for stocks and shares ISAs), which is a good way to save if they've got regular money coming in from grandparents or a small windfall – you can invest up to £15,000 a year. If they're keen to learn about investing, most share-dealing providers offer "demo accounts" where you practise investing with virtual money until you're old (and rich) enough to do it for real.
Cruel to be kind
As they prepare to enter the real world of work or university life, it's not a good time to be too liberal with hand-outs or emergency bail-outs. Julie Hedge, author of The Pocket Money Plan (Ovolo, £9.95), suggests charging interest if you lend your older teenager money for something they should have saved for, such as a school trip or holiday with friends.
"You may have been tempted in the past to splash out for an easy life, but this can't continue," she says. "Your objective is to teach your child to appreciate the value of money." She advises setting the interest rate similar to high-street rates.
Teach them to be savvy
Buying things on impulse is a favourite teenage pastime, especially when shopping with friends. It's a useful experiment to get them to tot up the amount they've spent in the past year on things they've barely used.
When finance guru Martin Lewis of moneysavingexpert.com did this with a group of 15 year olds, he asked them: if they could swap the things they'd bought on impulse for the cash they'd spent on them, would they choose to do that? All said a resounding yes. "Sadly, in real life no one will make you that offer, so you have to do it in advance by not buying on impulse," he says.
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References
- ^ expressbookshop.co.uk (www.expressbookshop.co.uk)
