Money mastery begins at home.
And it’s not just about being savvy with your savings.
Financial literacy fosters confidence, competence, and decision-making skills to handle money well.
But it’s part of a child’s education that is a bit, erm, lacking.
In a recent London Institute of Banking and Finance survey, 81% of teens between 15 and 18 years old reported feeling worried about money.
Add to this the findings that only 48% of UK’s children receive financial education, and it’s easy to see the overlap.
So, what can you do as a parent to instill healthy money habits in your little one early?
Especially when you’re relationship with money hasn’t always been comfortable or natural?
We’ve teamed up with PensionBee to get you the low down on financial literacy and easy steps you can start taking now.
Let’s get your kid’s financial future off to a smooth start!
In this article: 📝
- When to teach kids about money
- How to teach kids about money
- What should you teach your kids about money?
- The do’s and don’ts of teaching kids about money
When to teach kids about money
It’s never too early to start teaching kids about money.
Research shows that by the age of seven, most children will have developed several basic concepts that relate to future financial behavior.
This includes things like counting, the difference between coin size and value, and exchanging one item for another.
And the same research reveals that by the time they reach five, children understand the need to pay for goods.
Not to mention toddlers and preschoolers are keen social learners, absorbing the world around them like little sponges—and that includes advertisements.
Oh yes, never underestimate the power of adverts on a child’s growing attitude towards money (and how it links to their self-esteem).
So, as soon as your child shows interest in coins or asks questions about money on your shopping trips, jump on it.
Making money conversations a regular part of their lives lays a solid foundation for their financial education.
With most three and four-year-olds already getting the hang of counting to ten, it’s a great age to start.
And as they get older, you can start introducing them to more complex financial concepts like saving, budgeting, and earning money.
Bring on the chores!
How to teach kids about money
Real-world encounters are the greatest tools for teaching kids about money.
That and the sheer enjoyment of doing grown-up activities with their favorite adults.
Children are excellent social learners—think of them as information hunter-gathers, constantly nourishing themselves with new insights.
And you are their biggest supplier.
How kids first learn how to value money (and spend it) begins alongside you.
To help you take full advantage of this wide-eyed curiosity, here are four easy ways you can teach kids about money:
1. Talk about money
Financial literacy and talking about money go hand in hand.
In fact, the more taboo the topic of money is, the more likely your child will struggle with making financial decisions in future or seeking help when they’re struggling.
And when you consider that only 52% of 7 to 17-year-olds feel they receive meaningful financial education, being transparent with your spending habits is a small move with a lasting impact.
2. Turn shopping trips into lessons
It seems like a no-brainer, but we cannot stress it enough: children learn best when following your lead.
Use everyday situations to make teaching kids about money relatable and practical.
This could be comparing prices when grocery shopping, reading labels together, or talking about the money choices you’re making.
Children love getting in on adult activities, so invite them to help you at the checkout.
PensionBee even suggests encouraging them to spot all the ways you use money when you’re out and about.
3. Learn how to earn
There’s more to financial literacy than knowing how to spend.
Teaching your kids how work creates income can help them foster a healthy attitude towards money and its value.
Showing them how you read your payslip or simply letting them watch you pay bills can be powerful examples as they start to form ideas around money management.
It also lays a pretty strong foundation for understanding the difference between needs and wants and what it means to save for something special.
And let’s not forget the most important topic of all for every child: pocket money.
4. Start with pocket money
There’s no greater move for teaching money management and financial independence than pocket money.
Giving your child a regular allowance gives them firsthand experience of saving, earning money, and being responsible for their future financial well-being.
We’re talking about what it means to spend quickly versus saving funds for a rainy day (or something particularly valuable).
Whether you choose to give out pocket money based on chores or the family budget is entirely up to you.
And their age will obviously come into play.
However much you can afford or choose to give, just know the impact on their financial education is immeasurable.
What should you teach your kids about money?
If you want to raise a financially-savvy child, money management and saving skills are essential.
But so is understanding digital money and thinking long-term.
Children are now growing up in a world fast becoming cashless, meaning money is far easier to spend and harder to grasp than coins and notes (in more ways than one).
But more technology also means more tools for teaching kids money lessons around savings, investments, and yes, pensions.
To keep your child’s financial knowledge up to date and with the future in mind, PensionBee suggests considering setting up financial plans for them like:
Children’s savings account
You can open a children’s bank account once they reach 11 years old, but a savings account can be opened from birth and managed by you on their behalf.
The perk of a children’s savings account is how easy they are to use—you simply make regular payments at a rate of interest.
And once your child has started their financial education, they can even deposit and withdraw with you.
Plus, your children’s savings account can typically be accessed through your banking app, letting your little one see the benefits instantly.
Alongside a children’s saving account, you can also pay into a Junior ISA (a Junior Individual Savings Account) on your child’s behalf.
These are tax-free up to an annual limit and are typically capped at a savings limit of £9,000.
Once your child turns 18, the Junior ISA becomes an adult ISA and can be accessed by them immediately.
Junior pensions work in the same way as an adult pension, including availing of tax relief.
And while not the most common avenue for parents to take when securing their child’s financial future, it’s a solid one.
Especially if your child is more at risk of falling into the gender pension gap.
Sure, your child won’t be able to access their pension until they reach retirement age, but it lends a welcome boost to their spending power before they’ve joined the working world.
Even more so should they have to navigate potential gaps in pension contributions through maternity leave or major life changes like divorce.
What is a Junior SIPP?
As you research junior pensions, you may come across a Junior SIPP (a Self-Invested Personal Pension).
This is a type of pension plan that allows your child greater choice over their investment options—once they reach 18.
It acts much the same as a regular pension in that it attracts tax relief, and your child’s future employer can make contributions.
Junior SIPPs require a far more hands-on approach and investment know-how.
Way to kickstart your child’s financial savviness!
For more information, check out PensionBee’s in-depth guide to SIPP basics.
The do’s and don’ts of teaching kids about money
So, we know the benefits of encouraging financial literacy in children (including building pension confidence early).
But we’re also aware that financial education doesn’t come naturally to every parent.
Here are some helpful do’s and don’ts to keep in mind when teaching kids about money:
- Do keep it age appropriate: Start with simple concepts first, like counting, before introducing more complex ideas. Your child’s age and understanding will guide you.
- Don’t hide financial realities: Yes, it’s important to shield children from adult stresses, but it’s also important to be transparent about what money management really involves.
- Do involve them in financial decisions: Let them have a seat at the table when having certain family financial discussions to show the importance of making informed choices as a unit.
- Don’t use money as a reward: Or as a punishment. One of the greatest lessons you can teach your child is that money is a tool for accessing needs and wants not a measure of worth. And definitely not a method of control.
- Do encourage questions: Creating an open environment around money conversations allows your child to get comfortable with financial discussions early—which can only benefit their future work and family lives.
Hosted by experienced Business and Finance journalist Laura Miller, this episode features Certified Money Coach, Mentor and Founder of The Money Whisperer; Emma Maslin and Co-Founder and CEO of NatWest Rooster Money; Will Carmichael. In true PensionBee style, it dives deep to help you get simple answers to complex questions.
You can always follow along to hear directly from the best brains in personal finance as they share expert insights to help you improve your financial literacy (and get pension confidant)—a new family podcast, perhaps?
Bring on the money conversations!
Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.
For far too long consumers have struggled to manage their retirement savings. Pensions are often complicated, presenting a significant obstacle for savers wanting to take control of their money. In addition, many of us have no idea what we have saved, or how our pension is being managed.
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