Teaching your children about money is a vital task. But it’s hard because they have a limited capacity to understand the complexities of finance. There are a lot of nuances when it comes to money which their young minds can’t grasp. Most children don’t naturally have a long term perspective, they see what is in front of them. Teaching them about money is not a one off task like potty training. It’s going to take years and many conversations if you want to thoroughly train them to learn how to handle money wisely.
Below are some simple principles we’re starting to teach our young children as a foundation for understanding how to use their money.
- Only spend what you have
Whilst this should be a fairly obvious starter, it seems that this is no longer the case. In 2023, Money and Pensions Service released their latest survey which said 8.1 million people are in debt in the UK. That’s a big number. Beyond credit cards, you can now access loans with high interest rates or money platforms like Klarna, After Pay, Paypal Pay Later and Zip which let you ‘buy’ items before you have to pay for them. Wanting the nice holidays, the meals out, the luxury goods, the expensive car on finance that everyone else on your social media seem to have. It’s easy to get in debt now.
But only buying what you can afford is a good principle to understand early off. If they want a toy that’s £10 and they only have £5 then they can’t buy it. They’ll have to wait until they have saved enough money. And if they’ve had to save/earn it, they’ll look after it much better. If parents are in debt, most children will see and feel that anxiety in some form or another and it will shape how they view money.
- You need to put the effort in to really understand how to look after money
Learning addition and subtraction and how much pocket money you get isn’t going to be enough. Unfortunately, this doesn’t seem to be a subject that schools spend much time on, but if they are going to be fiscally responsible, they will need to learn how economics works. That means they need to understand how a mortgage works, what an ISA is, how they should build up a pension, and what interest means. Use opportunities that are given to you to explain about money, but equally find age appropriate materials that will start to teach them about money. A few examples:
The Fairer Tales that HSBC produced gives a very simple explanation to having a bank account, starting a business and investing in property through some well known fairy tales, great for very little ones.
Biblical Economics in Comics explains the market, money, taxes, government and law through cartoons (although it’s focussed on the American System).
Money for Beginners is a really thorough book using brilliant infographics that cover a huge amount of information
The more they understand economics, the more they will be able to take advantage of opportunities like junior ISAs and manage their money better as they get older.
- Take the opportunities to use your money for others
Managing money well isn’t about being able to amass as much as possible. It’s about being a good steward of money, so that instead of just piling it up, you help others with it. Using money well means you can use it to bless others. That will look different for everyone – donating to your foodbank, giving to the church, supporting a young person with their education or funding a charity are some simple ways that your money can have far reaching and long lasting benefits to others.
We encourage our children to not think of their money as theirs, but rather something that God has loaned to them for a short time and they are accountable for what they do with that money. Beyond being wise with their money, we hope that they will want to be generous with it, always thinking about how it can be used for other people. As parents, we need to work on how to model this to our children, without being showy or insincere.
- Never make it your identity
It’s not the most important thing in the world, and it won’t ever define their success to us. We hope they will work hard and be sensible, but the amount they have or what they spend it on will never be the determinant of their achievements. We care more about their character and their actions. They have been given many other gifts, interests and resources.
I’m sure we all know people whose life is defined by the amount of money they have or by their relentless pursuit for more money. This is a pitiful life. Money is a tool at the end of the day and it can never bring any true sense of identity. Even very shrewd people can lose all their money. It is not something that you can rely on.
- Be very clear what your main life goals are with money
Many people fall into the trap of never thinking about what they are actually working towards – what they would like to achieve and then think about how to make their money work for them. The focus will probably change with each season you’re in, but if you’re clear on what you are working toward, it will be much easier to aim straight and not lose sight of where you’re going. For example, if it’s saving towards a house deposit, it’s probably really sensible to try and have a budget so that you can save effectively. If it’s making sure your family can manage on one income, you’ll need to make some lifestyle changes such as downsizing to one car. If you can make the opportunity to take a high pressure job for a short amount of time to be able to overpay on your mortgage and then take a sabbatical off for 12 months, then plan ahead for that. If you want to retire early, you need to put into your pension as early as you can. If you want to spend more time with your children, you need to think about if you could set up anything that provides a more passive income. Obviously not everyone has a job that can be flexible or be able to save much in a particular season, so this can seem like a luxary. If you are able to make certain decisions and actions now though, it’s definetly worth it.
Never fall into the trap of just working a 9 – 5 job with no aim. Know what you want, and work towards it.
- Make sure you can enjoy it
If you’re sensible about money, it’s easier to slide into the trap of being a miser. Always doing the right thing, never wasting it…but never able to enjoy it either. You become an Ebenzer Scrooge – working all the time then coming back to a dark, lonely, cold house. Yes, we have to be wise with money, but God gave it to us as a gift to be enjoyed. I’ve got this wrong multiple times in my life when I’ve been so focused on saving I’ve missed out on enjoying some things that I did really have the money for, I just didn’t want to spend it. It’s a good thing to be able to occasionally go out for a meal, treat your child or go on a holiday.
Simple principles but they can be a good start to conversations with your children about money. It’s worth talking to your spouse or a very close friend about how they perceive your relationship with money. It can be a huge blind spot for us thinking that we’re holding everything in balance but it can be apparent to others where we’re tipping too much in one direction or another. Remember your children will be watching and learning you as you engage with money, so you having a good relationship with money will set them up even better for the future.
