Parents Hub
How to teach children about money
From an early age children receive money, for birthdays, as pocket money etc., however only some will receive financial education alongside it. Studies show that teaching children about money from an early age has a big impact on their financial well-being as adults. Here’s how to get the lesson started:
Opening a savings account
The first step in teaching children about money is to open a savings account for them. Banks, credit union and An Post all offer junior savings accounts. Having their own savings account allows children to have a level of involvement when it comes to what they do with any money they receive. Active saving is one of the key behaviours associated with improved future financial well-being. A trip to the bank, credit union or post office to put money into their savings account can be a very exciting event for a child and positively reinforces the importance of saving. The type of account you choose for your child will depend on the type of access you want them to have. It is worth getting information on junior accounts from a number of institutions to make an informed decision.
Another option, to the traditional savings accounts offered by banks, credit unions and An Post is a savings account with a fintech company. There are now a number of them operating in Ireland and some of them offer junior savings accounts. This option would teach children about banking on-line from an early age.
Teach them the value of money
In order to create positive financial habits in children they need to understand the value of money. Even as adults we do not place the same value to gifted money as we do to earned money. One of the simplest way to teach children the value of money is by having them earn their ‘pocket’ money by doing age-appropriate chores. Just like a job, the more they do, the more they earn. Having children earn money allows them to form a link between working and income and will impact the choices they make around saving and spending as they get older.
Set savings goals
While it is important to actively encourage children to save it can be difficult if they do not understand why they are saving their money. Setting short-term goals teaches children the benefits of saving. Depending on their age the savings goals can range from buying a new toy they want, equipment for a hobby or saving for their summer holidays. Meeting these goals gives children a sense of achievement and encourages them to continue to actively save for things they want. The CCPC ‘Goals Sheet’, which was developed for adults, can be used as an example of a structured savings goal.
Teaching them ow to budget
One of the first challenges that young adults face once they leave home is budgeting. Teaching young children to budget form an early age gives them a tool that will greatly improve their ability to manage their finances when they are older. The first step in teaching children how to budget is showing them how a budget works.
Children are often brought along to do the food shop. Get them involved by making a budget and explaining to them that you have a set amount of money to spend on a list of things. Allow them to check and compare prices and add up the cost to see if they have enough money and if not what they can do to stay within budget. This simple task allows children to see how money works day-to-day.
Another important part of budgeting is the difference between needs and wants. Teaching children the difference between buying something you need and buying something you want is an important part of understanding how to manage money.
This step also ties into their savings goals. For example, you can help them understand that if they buy the toy they want now they may not have enough to buy the new football boots they need for next season. Understanding the difference between needs and wants as young children will help them, as young adults, understand how decisions made in the present can affect future savings goals.
Keep it fun!
As important as all of the above learning points are for improving children’s financial well-being as they get older it is just as important to keep the learning fun. Many financial institutions offer novel and entertaining characters to help kids learn about money. They may also offer useful online resources which can help to make savings fun and interesting. Ask at your local bank, credit union or post office branch to see what additional resources they may have.
Playing games that involve using money is also a great way to teach them how to manage money. Play “shop”, by taking it in turns at being the shopkeeper and customer. A good way to get them involved from an early age is to use a toy cash register, which not only teaches them about money but also helps them with basic counting.
