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How to Teach Your Child to Manage Money


| By Gina Flaxman | November 17, 2020

Kids learn about finance and money management from their parents, so invest in their future with these tips on how to teach your child to manage money.

How to teach your child to manage money: clever tips for parents

Like all important relationships, your relationship with money is influenced by your parents. It’s never too early to start teaching your children how to manage money and lay a good foundation for their future – one UK report found kids’ money habits are formed by age 7. “Learning about money sets young people up to navigate the financial challenges of adulthood,” says Laura Higgins, senior executive leader of financial capability at the Australian Securities and Investments Commission (ASIC). “Understanding concepts such as budgeting, saving and managing debt helps them make good money decisions later.”

Be open to sharing your own money experiences with your kids – it will make an abstract concept easier for them to relate to. “Think about the good financial habits you have and the mistakes you’ve made and relate that to your children’s experiences,” says Higgins. “Telling them about your successes and failures can influence how they perceive money.” The following simple steps can help your child appreciate the value of money and how it works.

Get Young Kids to Play With Physical Money

Easy ways for parents to start teaching kids about finance and money management

When was the last time you handled physical money? Most of us are primarily using electronic payments and cash payments are declining further due to COVID-19. For young children watching you pay at the till, money can be an abstract idea. They may not realise a payment is made every time you tap your phone or credit card, whereas handling and exchanging physical cash helps them to realise that items cost money and makes concepts such as saving and value more concrete. “Use real-life situations to help them understand where money comes from, like withdrawing cash from an ATM or paying for groceries [with cash],” says Higgins.

Young kids love role-playing games, such as shopping or cafés, so use it as an opportunity for them to handle real or toy money. They’ll learn to recognise different coins and develop maths skills at the same time.

What To Try

Use Money Boxes

Money management for kids: tips for how parents can teach children about finance

Money boxes help younger kids to see how savings add up. Opt for a classic piggy bank or a clear jar – kids just need to be able to open it to count their money. Many financial experts, including Scott Pape, bestselling author of the Barefoot Investor books, advocate creating three jars: one for saving (which Pape calls the Smile jar); one for spending (the Splurge jar); and one for sharing (the Give jar) with someone who needs it or to donate to a cause your child cares about. Every time they receive money, divide it equally among the jars.

If they’re saving for something, make sure it’s an achievable goal. If it’s something big, offer to match their savings dollar for dollar. You can buy a product like the Monkey & Chops Spend, Share, Save Money Box System or create your own with three clear jars, labels and markers.

Make a Pocket Money Plan

Clever tips for how and when parents can teach kids about money management

Pocket money can be controversial. Some experts, including Pape, believe it should be tied to chores, so kids see a direct link between work and money; others say doing chores is part of being a family member and children shouldn’t expect payment for them.

Whatever choice is right for your family, there’s no denying pocket money can be used to teach all sorts of concepts, including value and waiting for something you want. Just be sure you are clear about what you’re trying to teach.

“There is no right or wrong approach to giving pocket money – everyone is different,” says Higgins. “Whatever you decide, have the discussion with your children and come up with a plan.” Help them apply it to the real world by including them in discussions about family finances. “Talk to them about everyday money-management topics like how to do a budget, setting savings goals and the difference between needs and wants,” advises Higgins.

It also might be useful to talk with them about the Spend, Save & Share model of dealing with money, where they learn to divide any income into three pots: money they can spend now, money to save for the future and money to give to charity – let them choose their favourite. It’s obvious that having savings enhances a sense of financial security, but did you know research shows that donating money increases feelings of wellbeing, satisfaction and self-esteem? So it’s never too early to get into good habits.

Get Older Kids out in the Real World

As kids approach the end of primary school, begin teaching them about concepts such as compound interest and how expensive loans and borrowing can be. Use specific numbers and real-world examples, so it’s easier to understand. Pape says a part-time job for kids older than 15 can help them learn about financial fundamentals.

“It’s important to discuss core financial concepts with teenagers and older children,” says Higgins. “This can include how using their own money is better than credit cards and the importance of an emergency savings fund.”

Wondering about kids’ savings accounts? Finance tips and analysis website Mozo has a list of the best-value kids’ bank accounts. Apps such as Spriggy allow you to give kids regular payments and give them jobs so they can set their own savings goals and track their progress. ASIC’s MoneySmart website has games and activities for children to learn about money management.