Children are always excited about new things and raising them can be expensive enough without the pressure of them asking for latest toys, gadgets or designer clothes. Of course we all want to be able to provide for our families, but an important part of that is teaching them about the value of money, so they can grow up with good financial habits that will carry them through life.
If you’re not sure how or when to start, try one or all of these 7 lessons from 118 118 Money and help your child understand the value of money.
- Things they want cost money
How many times a day do you hear, ‘can I have…?’ Children are targeted by advertising urging them to keep up with their friends, who may have the latest toy or gadget to play with in the school playground. It’s natural for us to be drawn to new things, but it’s important to have an understanding of the family budget.
Try explaining to your child how long it takes an adult to earn the price of the thing they want. If it’s something you choose to spend your money on then work out, together, how long it’ll take you to earn it and what else you may have to spend your money on beforehand, such as bus fares or dinner money.
Likewise if your child’s bedroom is more plastic paraphernalia than furniture then suggest to them that they can earn the money to pay for what they want by selling some of their other toys. This will help clear clutter and give your child a better understanding of what it takes to earn or raise money for the things he/she wants.
- Where money comes from – work or return on investment
Being open and honest about where money comes from not only teaches children about financial responsibility, but also ambition. You can use work examples that are relevant to them, such as a teacher, to teach them about earning money from work. If your child is a teenager you could talk to him/her about his/her first job, such as a paper round.
Work out together how much he/she would get paid for how many hours, and then compare that to your job or give other examples. Discuss the best thing to do with their money, dependent on what they want. Open a bank account and suggest saving a small amount each week so they can watch their money grow and learn to manage what they have.
Investment is another way to generate an income. This investment could be education in order to get a better job, or investing in savings plans that will provide them with some security in the future.
- Opportunity cost
Simply put, the opportunity cost is the cost of a missed opportunity.
For example if your child has a school trip coming up that’s currently out of budget, think about what you’d have to do in order to afford it, and what would the opportunity cost be of missing it? Is it important to their education? Will it offer a good life experience for them?
Analysing that cost is a good way of working out if it’s really worth the extra time and effort it’ll take to save for something, as well as helping your child to think logically about financial costs and opportunities in their lives.
- Pocket money for chores
Running a family home can be exhausting! Children are messy and there is always housework to be done. A family is a unit who all support and work together, so it’s never too early to teach your children that they need to play a part in that. Using chores as a way of earning pocket money will teach them about earning money, as well as some domestic responsibility for later on in life when they have their own home.
Different chores can earn different amounts; depending on how much time they’ll take, such as tidying their bedroom, putting dishes away, hoovering or hanging out washing. If your child is saving up for something price up the individual chore, then give them the option of how many they do each week in order to earn what they need.
- Look after the pennies (every little helps)
How many times have you had a penny back from buying something, only to leave it in your pocket, or put it on the side and forget about it?
Even a penny a day can soon add up. Get separate jars for smaller coins, such as pennies and five pence pieces, and every time any of you have small change put it in the jar.
You and your children will soon watch your money grow, and you’ll instill a greater sense of value for even those smaller amounts.
- Borrowing versus earning
If there’s something that your child needs imminently, which they don’t want to or can’t wait for this is an opportunity to teach them the difference between borrowing and earning money.
If you’ve given your child a chance to earn his/her own money by doing chores or saving pennies, but they still don’t have enough, you can offer to lend them the top up amount – however, it’ll need to be paid off by doing a certain amount of chores for free over the following week.
For clarity – and to avoid arguments when the time comes – write this down, so that the terms of the borrowing are very clear – and ask your child to sign.
If you’d rather they earn the money, go back to those excess toys in their room to help them work out what to sell. It’s quick and easy to list items on Gumtree and anyone can do it.
If the item they’re selling is a bit bigger, or you want more people to see it to drive up the price, then list it on ebay, taking the time to look up similar items so you can both work out a price point.
- Saving takes time – things you want don’t come overnight
One of the most successful and important lessons you can teach your children about money is patience. The things we want don’t come overnight, but there are small things we can do every day to help us save. This puts us in control of our finances, and teaches children not to feel overwhelmed or scared of money.
Change the language you use from ‘we can’t afford it’ to ‘we don’t choose to spend our money that way’. This takes the frustration out of finances for children. Teaching them how to take responsibility for the things they want, and that the work they do has value will benefit them so much in adult life, which is of course what parenting is all about.
Remember 118 118 Money are here to help. We know how chaotic and expensive family life can be. Our aim is to help our customers achieve a healthy financial future, so they can enjoy every moment. If you have top tips on how to teach your children about money then we’d love to hear them so please do get in touch!