5 Things You Must Do To Teach Your Child About Finance

Finance can be a minefield, even if you previously done your homework. So imagine how confusing it can be when you are suddenly thrust into the world of finance without any prior knowledge of the way it works.

As soon as we all reach eighteen, the banks start to tempt us with exciting offers of credit cards, loans and overdrafts and for many of us it is seen as quick, free money and it often leads to a life paying off a debt that just never seems to decrease.

On that basis, isn’t it time we started to teach children about finance a lot earlier in life? Surely we could have all have benefited from some financial education before we had left school?

Today I’ll discuss some great ways you can prepare your children for the world of finance to make sure they have the best possible chance of avoiding issues with debt later on in life.

Let them help you devise a family budget to understand how much it costs to run the house

How do you expect your child to understand the value of your hard earned money if they have no concept of what things cost compared to what is coming in? I can almost hear the arguments I used to have with  my mum over it, “I can’t afford it” never used to quite satisfy me, I always thought the money was there and it was just my mum being stingy. I questioned everything and it’s a small wonder I’m still here to tell the tale.

Now I realise how much my poor mother used to have in her bank to budget for everything I’m completely horrified at the many tantrums I made her deal with. I wasn’t a spoilt kid, and if she had sat me down to explain what comes in against what goes out, she wouldn’t have heard a peep out of me. I just never took anyone’s answer as final unless I could see concrete evidence to support it – maybe that’s why I went on to do so well in sales?

Sit them down, you don’t have to tell them the absolute ins and outs of your personal finances, just explain this is what is coming in, that is what is going out. Make a budget so they can visualise it, let them help to decide on how to spend the excess for a treat or day out. Teaching them that money isn’t endless will help them understand sometimes we have to set limitations on what we can afford that month.

Making them feel included in the decision gives them a sense of responsibility and a feeling that they have had some input into one of the most important decisions in the house. Who knows, you may never have to use “it doesn’t grow on bloody trees you know” ever again.

Create them an account in the Bank of Mum and Dad to encourage saving

Or as it was in our house, the bank of mum! Make a spreadsheet to record their deposits into the bank of mum and dad. Encourage them to save a portion of any pocket money receive, whether that is from you, grandparents, auntys and uncles or just friends of the family.

Offer them an interest rate of 10%. For every pound they save, they will be rewarded with 10p interest added on top. If they did that weekly, in the first month their £4 savings will have earned them a further £2.20 taking their total to £6.20.

Watching their money grow by simply saving it will encourage them to start saving. Why wouldn’t it if it is making them more money? Once they have saved £50-£100 maybe consider transferring to a savings account or a Junior ISA.

Saving is a habit, once you have formed a good habit and made it part of your everyday routine, it becomes just as hard to shake off as a bad habit. Getting them to understand the importance of saving earlier in life will instill this good habit into them. If they are used to having a pot of money for rainy days, holidays and emergencies, they are much less likely to see borrowing their way out of trouble as a good option in the future.

Get them familiar with using a bank account

A great way of teaching your child about banking is to set up a prepaid account in your name and add them as an additional account holder, that way you can track their spending habits and act accordingly.

If you see them blowing their money (or should I say your money) on absolute rubbish every week you can intervene and explain that just because the money is in your bank, it doesn’t mean it is there to be frittered away on any old purchase willy nilly.

The benefit of having a prepaid account is they can only spend what you load onto the card, stopping them from running up any unnecessary debt. When you feel they are ready, you can upgrade them to a traditional high street bank and be safe in the knowledge that you educated them properly and they are now ready for the next step.

Having a prepaid account is also much safer than carrying cash, it also means that should there be an emergency and you need to send them money to get home as an example, you can top them up from home and have the peace of mind that they can get home safe.

Check out the award winning icount prepaid current account here.

Offer them a loan with an interest free period

OK, I’ve not totally lost my mind here so bear with me. Loan is not a dirty word, sometimes they are necessary and if the money is used sensibly then it can be a good thing.

When searching for a loan the most crucial thing is to find a provider whose terms allow you to pay it off as cheaply and as quickly a possible. How would you know this without education first?

If your child is looking to purchase something that is more than their current savings pot and it’s something you consider to be of big enough need, offer them a loan with an initial interest free period say of six months.

They now have six months to pay back only what they borrowed. If they leave it too late to pay back inside their interest free period add a 10% monthly interest charge on the outstanding sum. Nothing will teach them to pay back a loan quicker than the original loan increasing in size.

This will teach them to seek out the best deal with the best repayment terms. If they are already in the habit of aiming to pay things back as quickly as possible it will stop them spreading the cost over a number of years, getting stung by interest charges and running up debt they may struggle to pay back later in life.

Create their own credit card

Just like the loan, I haven’t lost my mind and there is method behind my madness! Apply for a prepaid card as there are no credit checks and no negative imprints on your credit file by doing so. Add your child as an additional card holder to the account –  they must be over 13 years of age – with the card in their name it will make the credit card concept seem much more real.

Now, top up the card with £40 credit. The money is your childs to spend however they wish – within reason! Continue to give them their pocket money as usual. For this example let’s say they receive £10 per week.

The card comes with a 10% interest charge at the end of the month on any balance still outstanding. So, if they have spent the full £40 balance by the end of the first month and have not cleared their balance, they owe you £4 in interest charges from their first weeks pocket money the following month. Leaving them with £6 pocket money and the £40 outstanding balance is still owed.

If they have been frivolous with their spending and have not been sensible enough to pay it back they are already £4 out of pocket. 1st lesson about using and paying credit back wisely learned!  

Check out the award winning icount prepaid current account here.

If they continued to dodge paying the money back over the whole year it would cost them £48 in interest charges, plus the £40 they originally borrowed.

In conclusion

When debating whether children need this kind of education (with one person in particular) I always say, “would you throw your child into the deep end of a swimming pool without teaching them to swim?” Luckily, so far, everyone I have posed that question to has said no! Prevention is better than cure, teach them young and watch them flourish later on knowing that it was your teachings that set them on the right path in life!

What financial education do you plan on teaching your kids?


This post was written in collaboration with icount Money, the award winning prepaid account.

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David Naylor is the editor of the Thinking Thrifty blog. An award winning personal finance and lifestyle blogger, he shows how it is possible to live extremely well for less.
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19 thoughts on “5 Things You Must Do To Teach Your Child About Finance

    1. I totally agree Michelle. We are taught nothing about it in school but expected to manage it sensibly when we hit 18 and have credit thrown at us from all angles. Then, we have parents with no knowledge to pass on. Pretty shocking really. Your future children will do well with you to guide them!

  1. David! Love the post. You always put a lot of thought into what you write and it shows.

    Everyone has different views about debt. I shy away from it because I’ve borrowed enough money for a few lifetimes and the feeling of embarrassment and regret about my poor financial decisions has turned me off to borrowing money forever. I respectfully disagree about teaching kids to borrow money. THAT SAID, I think an even worse plan (and what most people do, sadly) is to totally neglect to teach their kids ANYTHING about credit, either 1) to avoid it or 2) how to use it responsibly.

    Kids do need a roadmap for dealing with finances and they will look to their parents. It’s not just about learning by osmosis, there needs to be some actual intentional instruction. Without it, kids with financially responsible parents (like myself) may still get themselves in a mess.

    1. Hey Andrew, thanks for taking the time to have a read and comment and your kind words. Totally take your comments on board about not teaching them to borrow, my position on that is, it’s better for them to have some knowledge on it before they take the plunge later in life. When I talk about offering them a loan, I mean as long as it is for a reasonable purchase. Say for instance a bike, I would argue this is a good investment if it encourages them to exercise and lead a healthier lifestyle and would say it would be worth loaning them the money and using it as an exercise to teach them to find one with good terms and the quickest option to pay back as cheaply as possible. I do love everyone’s different take on this though, one of my colleagues believes in no financial education at all and we work in debt management!

  2. I talk a lot to my 5 year old daughter about money. How much things cost, how much things cost in relation to each other or in relation to her allowance, when and where she can make cheaper substitutions. In addition to an allowance and an interest bonus for saving, this has gotten her to understand a lot about how her money and ours work.

    1. I think it’s great you take that approach Emily. Financial education for children is vital. I work in debt management and it’s shocking to see so many young people who need a debt solution so early on in life.

  3. I added both of my kids to all of my credit cards when they both turned 13. It’s a fantastic way to establish credit for your kids. By the time my daughter was 18 she was receiving platinum credit cards. The score is a great way to save them money, due to low rates on cards, loans, etc.
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    1. Yeah, there is little point acting as if credit doesn’t exist, if children are loaded with the knowledge of how to use it earlier it can only help to prevent them using it unwisely and falling into debt later on in life.

  4. I talk to my daughter about money (she’s 4) and she understands that we can’t just buy anything we want. Learning to count and add up is definitely helpful with little ones. Saving pocket money and learning delayed gratification too.

    I think the most important thing that I want to do is lead by example. I can talk her ear off about money, but her learning the skills needed from me, is how she will most likely act as an adult.

    1. Hi Francesca, thanks for taking the time to read and comment. I agree with you 100%, she will certainly learn from your influence. I spent a lot of time with my granddad when I was younger and I took everything I know from him. I never borrowed a penny, anything I wanted I saved for. My brother spent a lot of time with my mum, if he wanted it he’d borrow, as she would, rather than be patient and save. I think it’s great you’re educating her from such a young age, I’m sure she will grow up fully understanding the value of money with your guidance.

  5. I feel pretty lucky at the moment. My 4 year old son often asks for toys in the toy shop or supermarket, as most kids do. I get down to his level and tell him not today, that costs money and Daddy doesn’t have a lot of money at the moment. He understands and stops asking. We find a lot to do that doesn’t cost money, like building dens at home with duvets and blankets or playing army or pirates with sticks in the park. 🙂 Kids don’t need a lot of new toys, there’s a lot to be said for fostering their imagination and making the most of what you have.
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    1. Sounds like you’ve raised a little belter there. And you’re so right about feeding their imagination. For some reason when I was a kid I had an obsession with George Formby (no idea how or why!) and to keep me quiet my mumk made me a ukulele out of a Flora tub, a piece of wood and decorated it all for me. I never put it down and it was essentially made from rubbish!

  6. I and my husband always talk about this, we have a different opinion about teaching kids about money. I was brought up in a house where there was never money to buy food every week. As unhappy I was as a child I know this has built me up to survive today. I don’t approve of not letting your child know that you don’t have enough, pushing them to live in ignorance.

    Good writing David

  7. We need classes to teach this early on! Yes, parents need to be involved as well. How fun would it be to set up a store, bank, household for kids in school to teach them?

  8. My husband has always said, to which I agree, that there would have been far better ways to spend our high school years, like learning about how to navigate the world of finance and business. You’ve laid out a very good lesson in management of time, money and of yourself. You’ve shown how to be responsible and how to teach responsibility. I like it.

    Thanks for taking the time to write about a really important, and under-appreciated topic!

  9. This is so important to do, so I hope plenty of people read your post and take heed. Learning how to budget is such a useful skill for the future.

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