How to teach your children (and grandchildren) about money

When I was a child, life seemed so much simpler. For fear of sounding like a nostalgic advert, there was no daytime TV, only three television channels (Channel 4 didn’t arrive until I was at university), no mobile phones, and no laptops.

Instead, we played board games or, more commonly, played street football or rode our bikes down the local lanes. Without today’s ever-present technology, pressure to conform – to look a certain way, or to buy certain brands – was limited to our school peers. And they were nearly all from the same socioeconomic background and all had access to the same shops.

Today’s world is more complicated in many ways but none more so than when it comes to organising our finances. However, life events are much the same as they once were: going to school; buying our first car; you might go to university and have to budget for the first time; you might get married or move in together; and there’s buying a first home, children, pensions etc etc.

Every generation goes through the same – or similar – cycle of events, but no-one prepares us for what is to come. Yet these are basic life skills we should be passing on to make our children as financially independent as we can.

Why is it important for kids to learn about money?

Selfishly, teaching children the basics of finance can save you money. Teaching them to put a jumper on rather than turning the heating up, only boiling enough water to make a cup of tea, and putting a lid on the saucepan to reduce the amount of energy it needs to bring it to the boil, will all help the household finances.

This can lead to a conversation about budgeting. Having a fixed amount of money coming in every month (like pocket money) and deciding how you want to spend it. How saving money in some areas gives you more freedom to spend money on the stuff you enjoy. Then point out how it’s the same when you go shopping; do you need designer t-shirts and trainers for the gym? Save those for going out and being “seen”.

How to teach children about money

As parents and grandparents, we need to take time out of our busy schedules to teach our children the important life skill of managing their money wisely. It’s up to us to show them the way. But where do we start?

1. Help them learn the cost of living

This is the principal behind the examples mentioned above. Teach them how money is a finite resource. To spend it, you have to earn it, and that means making choices. Set aside a sum of money and ask them to balance the family budget for a month. Tell them how much the utilities cost and then ask them to assign the remaining budget between grocery shops, take-aways, clothes, cinema trips, sports clubs, and saving for a holiday. Allow them to do the online shop so they get used to how much things cost in the real world.

If you have smart meter, remind them of how much energy has been used at the end of every week and get them to rework their figures.

At the end of the month, talk to them about their experiences and what they learned. How much money was left? Could they have spent less, and how?

2. Help them learn the value of money

Let your children see how many hours it takes to earn a certain amount of money, encourage them to do household chores in exchange for their weekly spending money. Wash the car; mow the lawn; empty the dishwasher; tidy up, dust, and vacuum their room. Show them where they fit and how they can help the family unit. Many families seem to have lost the value of this. This is a vital way of teaching your children responsibility and accountability.

Encourage older teenagers to look for weekend work – earning their own money and seeing just how far it goes is a great life lesson.

3. Teach them about the dangers of 'bad debt'

Speak to them about the dangers of credit cards and the consequences of buying things that you cannot afford. Help them understand the very high rates of interest charged on this type of bed and what could happen if they couldn’t keep up the repayments.

Read more: Financial priorities in a cost-of-living squeeze

4. Teach them about credit scores

When your children turn 18, teach them about the importance of maintaining a good credit score. If they have a poor credit score, lenders might charge higher rates of interest, offer a smaller credit limit, or reject a credit or mortgage application altogether. Teach your children how to ‘boost’ their score by adopting good financial practices.

When they first step out in life, they will not have any credit history so they will need to start building a score for themselves. Opening a bank account and maintaining it well is a good first step on this journey.

5. Encourage them to save

Get them interested in putting a regular amount of money aside. Price-comparison websites can help here as they provide information on the best savings rates for children’s accounts.

Junior ISAs also offer a great first step into the financial world. As they can’t touch the money until they turn 18 it also teaches them the discipline of saving today for a better future. By showing them the power of compounding – earning interest on interest already earned – you can discuss the role of pensions in providing better choices when it comes to the day when you no longer working.

Teach them the difference between holding cash on deposit – albeit in accounts paying better levels of interest – and investing for a better long-term return. But alongside that teach them that returns can be ‘jumpy’ and not to lose faith but to focus on the longer term.

Read more: Should you save or invest?

Sometimes a good old-fashioned money box can help children feel the importance of saving and make them responsible and ultimately more grown-up. After all, there is nothing like seeing a pile of money get bigger.

Want to find out more about how to save money for your kids? Read our free guide on Investing for Children.

6. Give older children tips for saving money at university

If you have children at university, suggest that they set up a ‘whip’ when in the pub rather than buying rounds. Recommend they pool money with their housemates for food and drink. Going to a supermarket and buying rice and other foods in bulk and sharing the costs is a great way of saving money.

7. Teach them about money scams

Children are likely to be much more tech-savvy than you, but also more casual about sharing their personal information online. Warn them about the dangers of doing this and let them know that a bank or financial institution would never ask them to divulge their personal information.

Read more: How to avoid investment scams

8. Invest time in your kids

Above all, spend time teaching your children everything you have learnt in life. It doesn’t have to be all at once. But make a list of the things you wished you’d known about at certain stages in your life. Then assess when you think each child is ready for the next lesson. Just try not to leave it until the moment after they needed that advice.

Show them the importance of saving in the short, medium, and long term. Teach them about the merits of pensions and investments. Teach them how to plan their futures. Help them set life goals and discuss the potential amounts of money needed to achieve each stage and how long and how much they will need to save for to reach each milestone.

If you need help with any of these topics, our website has plenty of tools, guides, and insights for you to lean on.

Finally, you need to teach your children the value of their own self-worth. Historically, women earn less, save less, and invest less. This is why women have much poorer retirements than men; their annual pensions are more than a third less. Show your girls how to be financially independent, talk to them about the opportunities that money can provide, rather than what it buys.

Drive them to build careers that will make them financially independent. Because by creating their own financial resilience they have the freedom to take a career break and start a family with less worry about the long-term consequences.

Read more: What is the gender pension gap and why does it matter?