The time to discuss money management might seem far away when you have a young child.
Generally, no one sits a toddler down to talk about ISAs.
However, starting to teach your children about managing money in an age-appropriate way, when they’re ready, can be key to developing skills for life. When we “play shops” and let children use plastic coins to pay for things, we’re already showing them that goods aren’t free. And as they age, many parents choose to link pocket money with chores, laying the foundations for understanding that money is earned.
But why is this important? And why can parental financial literacy make a difference for their children’s futures too? Let’s explore this topic.
Removing fear of money
For many of us, money can be a stressful topic, and when we feel unsure about money ourselves, we can unwittingly pass this onto our children.
Our word choice matters more than we think. For example, “that’s not what we’re using our money for today” is likely to sound less harsh to a child than “we can’t afford that”. It’s not about creating an illusion of lots of money for our children, but more that balance and saving should be seen as an everyday part of life, rather than us punishing ourselves.
Creating good habits
By starting early, parents can help their children develop good financial habits, and therefore give them a solid foundation for their future. Research reported by Remitly shows that children who have a good financial education are more likely to save and feel confident about money. With the same report showing that attitudes towards money are set by the time children are seven, it’s clear that starting early is key.
How you choose to teach your children about money will be dependent on their age and personality – there’s not one right approach. As we’ve mentioned, playing shops and earning pocket money through chores are two options, but you could also use digital games or let them count out coins when you pay for something in cash. Self-checkout machines can also be a great way to give them hands-on experience, or you can get older children to help calculate your spend as you go around the supermarket.
Money-focused board games, like Monopoly, can be useful for older children. Even games that aren’t specifically money-focused can help children learn to “save” – for example, UNO teaches children to hold back powerful cards to use at the right moment. For young children, simple counting games can be useful to get them into the habit of understanding different quantities. You could encourage them to count each step as they go up the stairs, or to count how many building blocks they use as they make towers or other creations.
Starting young is key to key to maximum savings
On a practical level for parents, your own financial literacy can help you and your children get the most out of your money. Compound interest (interest on interest) is most effective over a long period of time. If you start putting money away in a savings account for your child when they’re born (even a small amount), by the time they’re 18, this will have grown.
Let’s say you open a savings account and deposit £100. You then add £10 per month until your child is 18. This will take you to a total of £3,180, based on a 3.5% interest rate, according to Aviva. In total, you’ll have deposited £2,260, and earned £920 interest.
Making the most of the tax-free savings
In the UK, parents are allowed to open a Junior ISA (Junior Individual Savings Account) specifically for children under the age of 18, in either a cash or stocks and shares format, or one of each. This gives you the opportunity to save up to £9,000 per tax year collectively across both accounts, tax free. The powerhouse combination of the tax-free wrapper and compound interest can make this an excellent choice for many families. It’s important to note that the money is looked after by the parent, but belongs to the child; they can take control on their 16th birthday, and access the money when they turn 18.
However, it is good to consider if you’re likely to need this money before their 18th birthday – if so, a standard savings account might be a better option.
Financial literacy promotes a stronger future
Whether you’ve got a lot of money or a little, knowing how to manage it can make all the difference. By teaching your children these valuable skills in an age-appropriate way, you’re equipping them with essential life skills.
It’s also important that parents aim to increase their own financial literacy, both to support their children but also to maximise their savings and make day-to-day expenses easier. It can feel daunting at first, but there are plenty of fantastic online resources and podcasts out there to help. The MOB+ community has a channel dedicated to building financial confidence, so you can feel supported as you develop your money management skills alongside other mums. Similarly, the Money Helper website is also an excellent resource for advice on everyday money management, benefits, family finances, and pensions, with a few different ways to get in touch should you want additional support.
