In the UK, money is a taboo subject and can often be an awkward conversation. However, normalising talking about money is easy and is especially important for your children, to help educate and prepare them for when they eventually flee the nest.
As your child will learn the basics of money at primary school (counting and handling change for example) – we’ll focus on the conversations to consider having with pre-teens, teens and young adults. They’ll require additional financial education and guidance on money management, as they start to enter the real world.
Pre-teens – teach them the value of savings
They’ve learned the basics of money at school and are now, probably, at an age where they’ll want to start putting their pocket money towards buying their own belongings such as clothes, games or technology.
This is where education and learning about the value of saving comes into play. Saving money will help your children understand goal setting and how to plan to achieve that goal, whilst developing a sense of independence and security.
Saving does require discipline and focus. However, instilling this behaviour early on could set your child up in good stead as they start to adopt these behaviours as they grow up.
To teach your pre-teen about the value of savings, here are some things to think about:
1. Create an opportunity for them to earn pocket money
If you can, consider giving your child pocket money after doing some chores. This should provide them with some momentum to earn money and understand the value of it, as they can use their hard-earned cash to purchase something they want.
2. Focus on the short term
Ask your child what they would like to buy – is it a toy, a camera or computer game. You should then both sit down and create a plan to identify how long they’ll need to save up to afford this product. It will help your child understand that we can’t always buy things immediately and it can take time to afford what we want.
3. Create different scenarios
Set up various scenarios to enable your child to think about the value of saving, rather than just focusing on materialistic objects.
Show them how much money they would need for a day out with their friends for example, if they went to the zoo or the cinema. Or ask your child to sit down with you and review the shopping list together – get them to point out where they think you could maybe save money. For example, you could buy a more expensive branded product one week and then a cheaper alternative the following week. You can then both decide which one was better and if it’s value for money. It’s also a great idea to take your child to the supermarket, so they can see and understand how discounts can help you save money.
4. Encourage the use of handling coins and notes
We’re becoming a cashless society and your child will be picking up on these behaviours as children usually learn from what they see. It’s therefore a good idea to use real money (coins and notes) to help them grasp a good understanding of handling cash and using mental arithmetic – to work out how much money they require to pay for the item, and how much change they should receive.
To put this into practice, when you next go out shopping, give your child the money to handover to the cashier and count out the change they receive back. If you decide to use your credit or debit card, explain to your child how bank transactions work. There is also the traditional method of setting up a piggy bank to allow your child to see their savings grow.
5. The classic monopoly board game
Monopoly is always a fun but competitive way to learn about handling money and savings.
Teens – teach them the budgeting basics
Your children are now at an age where they can open their first savings account – so it’s a crucial time to support them with budgeting and money management, as they start to seek more responsibility and ownership of their money.
There are saving accounts available for 11–15-year-olds and parents will have access to the account to ensure it’s safe. You should speak to a financial adviser or the bank provider before you make any decisions. For those teens that are slightly older, they’re likely to start their first job whether that’s part time or full time. Your teenagers will be looking to save for more expensive items such as a car, University or maybe even their first property.
It can be tricky talking to teenagers about money as they want more independence but here are some hints and tips to consider:
1. You’re their role model – show them how you handle your own money
It’s good to be open and transparent with your children, when you’re talking to them about your finances, as it could help them understand your decisions and values around money. Show your children how you spend your money, how you budget and tell them about your financial goals – for example, share why you couldn’t afford something, or tell them why you’re cutting back to put some savings aside for a holiday. You can even consider asking them what they would do differently. Your children do look up to you and it can be frustrating when you say no to something, or hide things without any explanation or rationale.
2. Understand wants vs needs
As they start their first job and earn more money – budgeting is more important than ever. Follow these steps to help you create a budgeting plan with your child:
- Identify wants vs needs – this is important to distinguish where to spend and save cash. Talk to them about avoiding peer pressure, as they don’t have to follow what all their friends are buying.
- Set goals – after identifying their wants vs needs, prioritise what goals should be achieved first and if there is a financial target their working towards.
- Show them how to divide their cash between saving, spending and perhaps giving to charity.
- Track expenses – it’s now time to track their spending and saving habits. Can any improvements be made? Remember there are discount codes and coupons available – show them how they can be savvy with their money.
- Consider a buffer – think about developing a flexible budget that includes a line item for savings and another for extra cash. This will help them afford the occasional purchases which really brings joy. Afterall, it’s about getting the balance right of having fun and spending wisely.
3. Lessons about virtual money
We’re becoming a cashless society so when you open their first bank account with them, opting for a debit card could be an option. As it can be easy to lose track of your spending when you have a debit card – share your valuable life lessons and experience with your teenager as they start the next step in their money management journey.
One lesson you should teach your child is about being safe online, especially with their bank account as scamming activity is particularly rife. Here are 4 steps to help you identify if it could be scam1:
1.Trust your instincts – be wary of unsolicited phone calls, emails and letters as well as cold callers to your home. This could be part of a scam.
2.Take your time – you should never feel rushed into making a decision. Read any documents you receive thoroughly and always get advice from a regulated financial adviser.
3.Do your research – if an offer seems too good to be true, it probably is. Trust your instincts and research the named individual and/or company before taking the next step. You can look them up on Companies House.
4.Never give out personal information – scammers will use this to access your accounts, keep your accounts safe.
Visit our Online security and fraud protection page for tips on how to be scam savvy. You should also visit your bank providers website for their own hints and tips to help keep you and your child’s bank account safe. Make it clear to your child that they should come to you before making any decisions.
4. Start to think about the longer term
Even though retirement is a long way off, it’s never too early to start saving towards retirement. Your teenager is unlikely to start saving for their retirement at this age, but it’s good to put it on their radar and you can watch our video on How does a pension work? to educate them on the pension basics.
Young adults – help them start thinking about their future
They’ve now left school and might be starting University or their first full time job. Your child, as a young adult will now be working towards becoming financially independent, so they can move out and start the next chapter of their life.
It’s not an easy transition especially as the meaning and value of money changes – it’s no longer spending money on things they want and like. It’s now about having money to survive and pay for everyday expenses – to pay bills, rent, buy a house, own a car, and pay for food shopping.
This is where teaching about them the value of savings, budgeting and money management early on in their life, can help them be savvier and more confident when handling their finances.
A recurring theme throughout this article is that it’s never too early to make a start on anything and this applies to creating a financial plan for life. It’s something to seriously consider as it can provide direction whilst taking into account life’s twists and turns. Your child won’t be able to start doing all these things just now but if you educate them, it could help them be proactive with their finances rather than reactive.
Here are some hints and tips from our financial wellbeing index about what to consider when creating a financial plan:
1. Think carefully about debt/borrowing
Ideally, we all want to avoid getting into debt or borrowing money but most of us do have some form of debt – whether that’s credit cards, mortgage or even a student loan. But having some debt isn’t necessarily bad2.
It’s good to talk to your child about debt to help them as much as possible – to educate them about how banks and financial providers determine if you’re eligible for a loan, how your child can manage repayments as borrowing means paying back with interest, and you should also make it clear that it’s ok to ask for help if they’re unsure of anything. It’s a good idea to ask them what they think debt means, how they can avoid borrowing money and what would happen if they couldn’t repay it.
2. Build up emergency savings
Your child should also consider building up an emergency fund to ensure they have a safety net to fall back on2. They should try to save at least 3 months’ worth of income3 – by putting something away each month it can all add up.
3. Contribute to their pension
Within their financial plan, it should include pension contributions – stating an ideal amount to pay in at different stages of their life whilst working towards their ideal retirement income target. For example, considering how much they would like to have when they retire and how much do they need to save throughout their life to achieve this. It’s important to give their pension the time and attention it needs, for their pension pot to accumulate over time. Remember, the value of an investment can fall as well as rise and isn’t guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.
To help them envision their retirement your child can2:
- Imagine their best life – where do they want to get to?
- Think about what brings them joy and purpose – now and in the future?
- Define their money goals – to buy a house, pay off your credit cards, or have enough to retire early?
- Consider what do they want to tackle and in what order?
You can also read our article about How to plan for retirement - a step by step guide, which provides further insight into some other questions to consider when you’re thinking about and planning for retirement.
Helping your children learn the basics of banking, savings and even teaching them about the importance of saving for retirement, could set them up in good stead.
It’s about finding the best approach for you and your child, as you do want to keep it fun and engaging whilst instilling these behaviours. Instead of you talking at them, make it a two-way process by asking questions to encourage them to think about the situation and share possible solutions with you.
There are also lots of good tools and resources out there. Talk Money Week is particularly useful as it has resources about how to talk to your children, partner, friends or parents/grandparents about money.
If you're in any doubt, we recommend you speak to a financial adviser. You can find a financial adviser through MoneyHelper. A financial adviser is likely to charge for their service and should provide details of their charges upfront.