5 Things to Teach Your Children About Money

5 Things To Teach Your Children About Money

When it comes to the school curriculum, our children learn everything from Shakespeare, Pythagoras’ Theorem to how to throw a javelin correctly, but not a whole lot about money. I might be slightly biased but financial literacy is almost more important than the examples I’ve mentioned above. And teaching our children about money really does give them a better chance of managing their own more effectively, in the future.

As parents, we have to take this education into our own hands as there is not a lot schools can do when it comes to our children understanding money in a way that will truly benefit them later in life. After all, practical and real-life examples are often the best way to learn and so giving your child the responsibility for spending and saving from an early age, will be the best lessons they could have.

Here are other ways you can teach your children about money:

  1.  You’re never too young to start a business

Getting your kids to watch something like Dragon’s Den as soon as they’re old enough, is one of the best things I think you can do when it comes to financial education. Learning how to make money and not just ‘earn’ money could potentially set them up for life. Whether it’s buying products for less than they sell them for or creating a business plan for an idea they have, creativity is the key. And it’s something that is not taught in the classroom either. In fact, my son comes to me with business ideas all the time and I will always listen and help where I can.

Learning the difference between earned income and passive income is also extremely important because while earning money through employment is good, it rarely leads to financial freedom in the long run.

  1.  Budgeting and saving

Teach your children the importance of budgeting and saving money and that ultimately, this will help them make the most of their money.

You can start by discussing the importance of these concepts and how they can help them reach their goals. Understanding the difference between needs and wants is a good place to begin before they start practical exercises such as tracking their spending and identifying where they could make savings.

Setting a good example is always the most effective method of teaching. Children will automatically learn good habits without even realising it.

When it comes to saving, you might even be able to offer them incentives and rewards to give them a taste of the rewards they could get in the real world when they are working. This could be anything from a family trip, a special treat or even matching what they save.

  1.  The dangers of credit cards

While credit cards are fantastic and can boost credit ratings when we use them correctly (and pay them off on time) they can also be dangerous.  Discuss the dangers of credit and debt with your children. Teach them that having a credit card does not mean more money and how to use credit responsibly.

The most common dangers associated with credit cards are running up high interest rates, incurring large amounts of debt, and missing payments. High interest rates can quickly accumulate and make it difficult to pay off debt, while missing payments can lead to late fees and damage to your credit score.

Essentially, we need to teach our children that it’s important to use credit cards responsibly and to not take on more debt than they can afford.

  1.  Think about others

When it comes to our own money, understanding how our spending affects others is something we should always consider, especially if we have people who are dependent on us. While this is quite an adult concept, we can still teach our children to understand the importance of giving. If we can teach them to think of others when it comes to money, and perhaps show them if we are able, how to donate money to causes they care about.

  1.  Compound interest

Whether it was Albert Einstein who said it or not, the quote goes” “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. 

Compound interest really is a super power that expands savings – or drastically increases your debt. So, talk to your children about investing early and how by doing so, can help them realise their long-term financial goals.

So, when they are eventually working, if your child opened an account with £10 and then continues to save £1 a week to invest at the end of each year for 30 years, in an account that could average 5%, then this is what would happen:

 Opening balance:                              £10

Annual investment:                              £52

Total investment over 30 years:           £1,560

Investment value at end of term:         £4,868

Total interest earned:                        £3,038                   

Now, to adults, that might not feel like much of a retirement pot. But to our children, who are just starting to learn about money and what it can buy you, that’s a lot of ‘free’ money when it comes to total interest earned. And imagine what would happen to those figures if more than £1 a week was saved!

Getting paid interest on your interest is fantastic and a great concept for savers. Which is why teaching your children about it, can help them become disciplined savers too!

As with all lessons, you don’t need to teach your children all of them in one go. Pick something that feels right for you to teach them and start from there.

Who knows, they might be so intrigued, that they ask you more and more questions. And when it comes to money, knowledge really is power! 

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