Most parents will agree that there's no more important lesson than equipping their children with financial savvy for the future. In fact, it's why some parents start saving for their kids before they're even born.
While the ability to build a nest egg to help with university fees or buying a first car down the line is wonderfully beneficial for a child, so are the lessons kids learn about savings along the way.
If you set up your children with a bank or building society account from a young age, they can start managing their account from age seven and learn firsthand about saving money and earning interest.
Junior ISAs are another long-term savings option with tax-free interest that children can access at 18. They are available to children born after January 3, 2011 (or aged under 18 and born before September 1, 2002).
"Sometimes we all have to wait for the things we want. No matter how old your children are, learning this lesson will help them budget and save better as they grow up," explains Louise Hill, COO & co-founder of goHenry, a pre-paid debit card for 8-18 year-olds.
"When it comes to saving it’s important to help your children set both short term and long-term saving goals. The aspect you want them to grasp is the more universal idea of a goal, moving towards it and then accomplishing it," explains Hill.
Check out Hill's top tips on how to get your kids started with savings and the financial lessons you can teach them anytime, anywhere.
You can’t have it when you want it
Every trip to the supermarket or shop is not an excuse for your child to acquire another item. In fact, it's a learning opportunity about finances, according to Hill.
"The good news is the learning can begin with you on your trips to the shop. Before going in the shop or market it’s a good idea to make your children and teens aware of why you’re there."
It's important to be clear what you’re going to get, whether it's food for dinner or a birthday present for a friend. This helps educate your children that going into a shop doesn’t always mean buying something for them.
Spending money involves making choices
In terms of saving and financial education, the idea of choice is a major concept, Hill explains. "It’s something that as adults we do (or should hopefully do) automatically and consistently, a daily balancing act."
So how do you show your children how this works in their terms? Hill gives the example of children asking for a treat from a cafe: a delicious but overpriced smoothie (if you buy two, you won't be left with much change from a £10 note).
As a parent, you can suggest they skip the smoothie, i.e. if you don't have one here, we can put the money towards saving for something you want, like a new book or toy.
"They might still opt for the smoothie but they’ll be aware that there is a choice and the idea of now or later is also a good introduction to the realities of life."
Introduce an allowance
One way your children will start to understand how managing money works is by having control over their own cash. We're talking pocket money: an allowance will teach kids how to balance a budget and make choices about what they want and need.
The key to making it work? Be clear on what you expect the allowance to cover (i.e. bus fare for school, lunch, movies with friends, clothes etc). "Make sure they understand when it’s gone, it’s gone," says Hill.
Your money can grow if you save it
This is the point in financial education where you start to teach your children that just because they have a stash of money, they don’t have to immediately dispose of it. They can actually choose to save some of it and watch it turn into more money.
This is no easy task, with the temptation of instant gratification (and those lovingly meant cash-in-card presents from grandparents). But it can be done - without tears.
Hill recommends suggesting to your children that when they are given money (gifts, pocket money, payment for chores), the first thing they do is put some away for saving. As a guide, 10% is a good number.
This enables them to form a savings habit without feeling too deprived in the moment, which is important. No one wants to just save. Just like adults, it’s important for children to go through the full cycle of earning, saving and spending to learn to budget and grasp the value of money.
Young people are really switched on so giving them independence for money early in life (under your guidance, of course) will go a long way towards building their money skills.
Money Grows Over Time
Teach kids the simple concept of compound interest and explain to them that it doesn't matter how little cash they have to begin with.
"Remind your children that they have something up their sleeve when it comes to investing. Time.
"So it doesn’t matter how small the amount of money, they have the chance to build a nest egg – or an empire! That is the beauty of compound interest. While we are currently in a low interest phase, which is not likely to change in a major way soon, it doesn’t alter the principle and the benefits of compound interest."
According to Hill, even saving as little as £1 can yield benefits - she gives a practical example with a 50% interest rate (while unrealistic, it's easy for even younger kids to follow):
Put a pound in a jar in the kitchen or family room.
The next day, add 50 pence to the jar. This is 50% interest.
On the third day, add 75 pence to the jar (50% of the amount in the jar, £1.50).
On the fourth day, add £1.13 (50% of £2.25).
On the fifth day, add £1.69 (50% of £3.38).
On the sixth day, add £2.54 (50% of £5.07).
On the seventh day, add £3.81 (50% of £7.61).
There is now a grand total of $11.42!
This example clearly illustrates how money grows and how instant gratification is not always the best option and serves as a good reminder to the whole family in times of temptation.