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Beyond piggy banks – money management for children

             (As published in Mumsense magazine, October 2009 )

New research published by the University of Arizona has revealed that parents have the biggest influence on their children’s financial habits, and that if an adult ends up drowning in debt, or thousands of pounds in credit, chances are they inherited their financial habits from mum or dad.

The research suggests that parents who intentionally teach their children about personal finance have a greater influence on their children's financial future than anything they learn at school or during work experience. With this in mind, parents need to begin teaching their children about money management from an early age, and also to lead by example. So how do you get your children to learn to save and budget for themselves?

Very young children have the impression that their parents have a limitless bank account, and once they start mixing with their peers in the playground the pester power begins, “I want one of those”, “But everyone else has one”. Caving in to pester power is obviously bad for your bank account, but also has a negative effect on your children who will grow up with an unrealistic and immature view of the value of money.

Explain to your child that money does not come for free and that mummy and/or daddy work hard at their job to earn their monthly salary. Introduce the concept of budgeting by telling them how you have to divide up the money you earn to pay for food, petrol, clothes, toys and bills, etc and also put some aside for savings.

Let your child see that even as an adult you need to save up towards a big purchase, such as a family holiday or a new car. Remember you are the biggest influence on your children’s financial future, so if they see you saving up and spending responsibly, they will want to do the same.

Introducing pocket money

At some point in primary school, your child will want to start receiving pocket money. Talk to other local parents to get a ballpark figure, then set an appropriate weekly amount. As a guide, a recent survey of 1,000 parents by Raisingkids.co.uk gave the average pocket money for a seven year-old as £2.03, rising to £4.00 at age twelve.

Give your child a piggy bank as well as a purse, and encourage them to put half in each, one for saving, one for spending. Spend a few moments every month or so to help your child count up their money, and introduce a scheme where they can earn extra bonuses for helping round the home, doing well at school, good behaviour, etc. This will help them to associate earning extra money with making an extra effort, which is a great motivator and an important lesson to learn for later life.

Talk to your children about saving up for something they really want, and offer to pay interest on their savings at the end of each month as a further incentive. For younger children start small and keep the savings period fairly short – a few weeks or so - or they may lose interest.

Encourage your children to spend their money responsibly and use common sense when buying, but try not to be too controlling, they must be allowed to make their own mistakes and learn from them. If they spend all their pocket money too soon and have nothing left for the rest of the week or month they will soon realise that money is a limited resource and should be spent wisely.

Sharing may not come naturally to many children, however it is a good idea to suggest that a little of their pocket money is put aside to support charitable events and good causes. Red Nose Day and Children in Need are good places to start as most children are aware of these programmes through school. It may be a tough decision to part with their cash, but it is guaranteed that afterwards they will feel very proud of themselves knowing that they actually gave some of their own money to help other children less fortunate than themselves.

Practical steps for parents

As a parent you can help your child by talking to them about money and by playing games involving counting and using coins. Most young children love to play shops, and as soon as they can count you can use real money and begin to teach the child the value of the different coins and the purpose of money.

Take the children shopping with you, and let them see how you make your purchasing decisions. The weekly food shop is a good place to start, as children can be involved in choosing what to buy while learning about value for money. When they pick an item, ask them to tell you how much it costs – is there a cheaper option? A more expensive one? Which should you choose and why?

Introducing a family savings scheme is a great idea. Decide on something you would all really like to do or buy together. It could be something small like a new toy for the family pet, or something more expensive like a special meal out or a trip to a theme park. Take a big glass jar or piggy bank, and every week, each family member puts in a contribution, mum and dad a few pounds each, the children 10-25p or so depending on age. Make the children responsible for adding up the coins and keeping an eye on the total, then when you have reached your target, you get to go out and spend it as a family. This is a fun and practical way to introduce the children to the concept of saving. And if they see you joining in, then all the better.

Money management in schools

To date, money management has not been taught widely in schools. However, things are slowly changing with the recent launch of the Government’s three-year ‘My Money’ programme which will see children in primary and secondary schools throughout England receive personal finance lessons to equip them with the knowledge, skills and attitudes they will need to manage their money now and in the future.

Says Wendy van den Hende, Chief Executive of the Personal Finance Education Group which is responsible for delivering the ‘My Money’ programme, “Our research demonstrates that, even by the age of seven, children are aware of the impact of money in their lives. Learning how to respect and manage money in their early years will give them the confidence to make responsible financial decisions as adults.”

So talk to your children about money, let them see that you are in control of your finances, and saving and spending responsibly, it’s the best way to help them be money wise in the future.


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