Managing money as an adult is easier if you've been taught how to do so throughout your childhood.
The biggest influence for children when it comes to managing money, usually comes from how they saw their parents and grandparents deal with their finances.
Children learn fundamental principles from an early age and can be taught to follow good habits even before they are old enough to have their own money, or understand what it actually is.
Deciding what lessons to impart, and when, varies depending on each child as well as the knowledge and confidence of the adult giving out the lesson.
There are many activities kids can learn themselves as they progress through childhood from saving to opening their first bank account.
Age 2 – 6
Even before toddlers understand what money is, they learn notions of costs and value. A child can't explain what delayed gratification means, but it's clear from their behaviour that they understand it on some level.
If you offer a toddler a packet of sweets they'll probably eat them all quickly. But, an adult can teach them that by eating one every few minutes, enjoyment can be prolonged.
For older children of 5 or 6, the same principle applies. At Christmas, rather than opening all presents at once, adults can encourage children to open them one at a time and look at each present they've received.
Young children can learn about value by comparing six toys they most wanted over the last few years. Ask them why they wanted each and how much they've used each toy. Compare this to the cost and illustrate how in some cases they got more pleasure playing with cheaper toys than expensive ones.
Play is an effective way to introduce money principles to young children. Playing 'shop' is common and many children enjoy doing this. Toddlers can combine learning to count with actual coins and notes, learning that five 5p's are the same value as 25 individual 1p's. Reinforce this lesson by taking them to a shop and letting them pay for small items with physical coins.
Learning the benefits of delayed gratification or earning a reward.
Talk to your child about how their favourite TV characters treat money, how what they do costs money and which characters are good role models in how they manage money.
Just because something costs less doesn't mean it provides less enjoyment.
Coins, notes and currency come in different denominations with different values.
Age 7 – 11
As kids get older they encounter more situations involving money and begin to understand the consequences of financial decisions.
Whether your family is comofortable when it comes to money, or whether each week is meticulousy budgeted for, good and bad examples are there for kids to follow.
One simple lesson is to take a child to do the weekly family grocery shopping with a cash budget. Get them involved in writing the list, go through the cupboards, fridge, freezer, bathroom and all areas that make up the weekly shopping list.
Then go shopping and scan as you go or take a calculator and it's possible you'll get to a point on the list where you've reached your budget and you have to don't both picking up certain items, make choices or put things back.
This is a highly effective lesson on what money is used for, and that when it's gone - it's gone.
Be honest about money in relationships.
Illustrate what money is used for and how much things cost by listing what you'll be doing with your child over the next few days. Allocate the cash then ask your child to pay for each cost. If they want something extra, explain there might not be enough for other things.
There is no such thing as a free lunch.
Ages 12 – 15
Children now have their own pocket-money and can decide how to use it. They might even be paying for things online and in-store themselves. They soon learn what represents value, how to avoid online scams, and that money soon runs out.
One of my kids learnt a painful lesson. He was playing an online game and 'paid' £10 for tokens to get him further and was upset when he realised these only 'bought' him an extra 10 minutes of playing and that was his weekly allowance gone. He never did it again though!
By now kids want to buy bigger, more expensive items like bikes or games consoles so they can learn about saving. They can save Christmas, birthday, and pocket money, reinforcing lessons learnt about delayed gratification. They can learn how long it takes to save for an item, how to be patient or how to speed up the process by increasing the amount they save.
This is an ideal time to open a first bank current account, learn how to bank online, learn increasingly important security procedures for online banking, use a cashpoint and debit card with a PIN and earn interest on savings by opening a linked savings account.
Understanding what represents value.
Learning how to open and use a bank account and manage their own money by expanding their pocket money so they learn to budget for their own items.
Creating and meeting savings goals.
Learning that after you spend, you save to spend again.
Understanding the value of different currencies.
By now your children are on the way to financial independence and need practical lessons about all money matters including; budgeting, running a car, managing a credit card, credit ratings, and interest on savings or debt.
Your kids might now work to top up their income and should be managing money for their own social events and shopping for personal items.
Get your child to plan a budget for a family day out from transport costs, to food costs to entrance fees. Give them a realistic budget and get them to allocate it to each different area.
Households, families, and individuals usually manage money on a monthly cycle so show your kids how you manage your monthly household cashflow and budget.
You could show them a bill and illustrate the extra fees and interest that you have to pay if you don't make the minimum payment. Show them how long and the total cost you'd repay on a £2,000 credit card bill if you only made the minimum repayment.
Introduce the subject of credit scores, and explain that a healthy credit score allows easier access to cheaper finance for buying a car and eventually getting a mortgage.
How to effectively budget.
How to plan to succeed. Show your child how manage money over the period they receive it. If they spend on social activities weekly, show them how to allocate a monthly allowance to last four weeks or if they want to save for something costly show them how to save over a number of months.
Understanding the impact of interest.
What makes a good credit rating and why it's important.
It's undoubtedly true that financial education should start young and continue until your children leave home because it will provide them with the tools to manage their money more effectively, open up more opportunities and improve their wellbeing throughout their lives.