Children and Money

You’ve seen it, and heard it all before – mommy can I have this, that and the other. While it’s OK to be fair with your children it’s never too early to start teaching the value and importance of monetary transactions. I’ll discuss several tips and tricks in this article to help get the ball rolling in the right direction.

I guess the best way to start is to be honest, candid and have a healthy dose of common sense. While the grandparents will continue to spend money like there’s no tomorrow on your children, it’s your responsibility as a parent to teach them to understand money and its implications. You can help your children develop excellent money skills through the use of instruction and example, skills that will last a lifetime. Do you have a good control over your own spending habits? If not that’s where you’ll have to start, you must practice what you preach!

Since most of us cannot fully control the way we use money I’ll take a few minutes to go over some simple exercises to help you adjust. Ask yourself, of all the things money can buy, what is the most important to me? Think of your financial goals for your family over the next year, then expand to 5 years and then expand to ten years and so on.

Take a few minutes to complete this exercise by writing down a list and prioritising each item. Remember there is no right or wrong here; this is just to illuminate what money means to you so you can help your child to understand the values you hold true.

Here are some suggestions;

• Home
• Household expenses
• Education
• Recreation, entertainment & travel
• Savings & investments
• Charitable contributions
• Automotive expenses
• Insurances
• Other
• Etc…
  

OK, now you’ve completed that exercise we will continue on with teaching your child. There are no hard and fast rules regarding this although I would personally set a lower limit of 4 years before you start teaching them. By far the best time is when he or she starts to express an interest in money. Next time they ask for sweets, toys or comics, here is you opportunity to begin.

A good place to start is by demonstrating that money is used as a trading tool. Explain how people use money to trade services and products, showing them that making their own purchase they are in fact trading with the shop owner and in exchange for the money they are getting the product. Try to have the exact change for the product and give it to your child. Let your child hand over the money to the cashier, and after you have left the shop, have a chat about how the money paid for the item.

Always approach money with openness and honesty, giving your children constant and clear information about money. Explain to them why they can or cannot have certain items they wish to buy. You can’t always say yes to a request for money and if it has to be a no, then explain, “you have enough X for now” or if your child, like many others, decides they would like the entire Barbie isle in toys R us then, “You must decide which you want, Arctic Barbie with snowmobile or BBQ Barbie with authentic sausages”.

It doesn’t take long, and before you know it your child will have a basic understanding of money. When this happens you can start explaining the bigger picture. Start showing the older children how the whole family benefits from money by taking them to the supermarket. Once there pick out two similar products, stores own brand and top brand are good for this, and allow the child to make the choice. If they choose own brand, allow them to make a further purchase with the saved money. If they choose name brand, softly explain how that will leave less money for other products.

OK, well those are the basics of spending wisely. How about saving! When your children are receiving pocket money, teach them to save either some or all of it. It is always a good idea to let them spend some however as this encourages a work-like mind which will set them in good stead when they get jobs.

Alright then, you have your child saving money. At this point it is still a very basic thing. To move it up to the next level (providing your child is old enough); it’s time to open a savings account, better yet a child trust fund (CTF) . A CTF can be obtained from almost any bank or building society, and believe it or not many large supermarkets like Sainsbury also offer them.

A CTF is basically a long term equity based investment, which is managed by the many CTF partners around. There are several types of CTF available and just looking at the Natwest Child Trust Fund page I have found that they offer three; Savings account, Non-stakeholders account & Stakeholder account. As with any account you pay amounts into it and they grow based on investment. Most CTF’s will accept deposits of £10 which compound into much larger capital sums over the term the CTF is held for. This can be as much as 19 years.

At this point it is worth mentioning that while a CTF is a fantastic investment opportunity they are equity based. This means that the fund value can fall as well as rise and there are no guarantees. Also, as the name suggests, the money belongs to the child and can only be accessed at the age of 18 – as with any regular trust funds.

Have fun, save money and educate.