How to teach children the real value of money

The early experiences children have with money can shape their financial behaviour as adults, according to a study published by the UK government’s MoneyHelper service. By the age of seven, the University of Cambridge study found, most children are capable of grasping the value of money, delaying gratification and understanding that some choices are irreversible or will cause them problems in the future. The research suggests children who are allowed to make age-appropriate financial decisions and experience spending or saving dilemmas can form positive “habits of the mind” when it comes to money. This could lead to a lifelong improvement in their ability to plan ahead and be reflective in their thinking about money, or they may learn how to regulate their impulses and emotions in a way that promotes positive financial behaviour later in life.

Juliette Collier, a national director of the charity Campaign for Learning, says it is worth giving children as young as three or four their own coins to handle, spend and save. “Once they are old enough not to put it in their mouth, then give them some money,” she says. “If, for example, they end up wanting to spend that money on sweeties, then make it clear they can’t spend the money on something else. Let them make choices, and experience the consequences.”

There are lots of free resources you can use to teach young children about money at home. Valuesmoneyandme.co.uk, a website created by the credit reference agency Experian, offers free online books and interactive quizzes aimed at primary school aged children that explore interesting ethical questions about money and real world financial dilemmas. FunKidsLive.com hosts a short money podcast aimed at children, and there are lots of free games online (see topmarks.co.uk/maths-games/5-7-years/money or natwest.mymoneysense.com). If you prefer board games, Money Match Cafe or Pop to the Shops by Orchard Toys are educational and imaginative, while Cheeky Monkeys subtly provides useful financial lessons about the consequences of avarice and risk-taking.

Finally, do not underestimate the value of playing games such as “going to the shops” at home with real coins. Be sure to set a budget.

Collier suggests taking photos of different items in your home that can then be classified into necessities and luxuries, triggering a discussion about what money is for.

She also recommends talking about costs that may be hidden – such as the fact heating, electricity and water are not free – and involving children in attempts to save money. For example, you could challenge them to help you do a “no spend” day or make a recipe from the Love Food, Hate Waste website, using only ingredients you have in the cupboard.

You could use these activities as a springboard for discussions about how adults need to prioritise what they spend money on and how difficult that can be if you feel tempted to buy something you cannot afford.

The charity Child Poverty Action Group suggests you ask your child to imagine a child the same age as them, and talk to them about what that child might miss out on if their family doesn’t have money. Its spokesperson Kate Anstey says: “Speaking to children about poverty can help to raise awareness and understanding of poverty and inequality. It might seem like a difficult topic to broach but teachers who talk about poverty in their classrooms find that children actually cope with it very well.”

One of the best places to teach children about money is a shop. “Being able to handle money and buy something yourself is very special: it builds up your confidence with money,” says Dr Ems Lord, the director of the NRICH maths project at the University of Cambridge.

If you pay with a contactless card, explain how it works – that although you are not using coins, the money is still coming out of your bank account – and discuss the groceries you buy. Why might you choose to spend more on Fairtrade chocolate or free-range eggs? Are the more expensive products always better quality? Ask them whether they would like to do a blind taste test at home to check whether they can tell the difference between different-priced brands. Is it worth the difference in price?

Be on the alert for BOGOFs (buy one, get one free offers) and complicated discounts. Teach children how to compare different deals. “It’s absolutely essential that we teach children about money in context,” says Lord, a former maths teacher. “Encouraging children to work out the cost of shopping and comparing offers so they understand the value of goods is an essential life skill.”

Helping your children to master estimating is also very important, she says. “It helps children to develop a real feel for numbers so that they can easily spot when they’re being overcharged and avoid making costly mistakes.”

Open a Junior Isa for your child and buy a few shares in a supermarket or restaurant chain you visit regularly with them, suggests John Lee, the author of Yummi Yoghurt, a book about investing aimed at teenagers. That way, when you go there, you can explain to your child that you both have a “vested interest” in supporting that business and will hopefully one day get a reward, in the form of a dividend, if the business does well.

You could also talk to them about how you choose other funds for their ISAs and the impact you hope those investments might have on society or the environment. “The important thing is to involve your child and give them an awareness of the companies that you’re buying shares in,” Lee says.

Charity shops are particularly good places to take a small child to spend their weekly pocket money. They often find a bargain and you can use the opportunity to discuss the power of their pound: how does it make them feel, knowing they are supporting a good cause as well as getting something for themselves?

Point out the positive impact on the environment of buying secondhand and, when you get home, look up how much the item would have cost new and talk to them about how many more weeks it would have taken to save up for it.

Ask them why they think people donate to charity shops and whether they would like to do so with their old toys: how valuable will these toys be to the charity? What difference could their donation make to someone’s life?

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