The Ten Most Important Money Lessons to Teach Your Kids
As parents, the most important things we can do are to keep our kids safe and educate them. Among the many things kids have to learn, few are more important than money. Whether we like it or not, money plays a pivotal and central role in all our lives.
Becoming familiar with money, how to use it and how to make the most of it are all really important life lessons and ones which all children should learn.
So what are the key money lessons you can teach your kids? Let’s dive in:
Money lesson 1: Saving is cool
If your kids want the latest toy or amazing gadget, it’s better to tell them to save up than just buy it for them. Start them thinking about saving and explain how long it will take to save their pocket money to afford it. This creates a longer term mind-set – something that adults have to do all the time.
Money lesson 2: Setting goals is good
Teach your kids to set a goal. This might be to save a certain amount up by a certain time, to earn more pocket money by doing more chores or when they plan to buy that toy they’ve always wanted. Writing a note to themselves or filling in their notebook will help them focus on their goal. Bring it up with them periodically and ask them how they are going. This review and refinement process is crucial to learn for adulthood.
Money lesson 3: Don’t spend it as soon as you get It
Children run on impulse. You can help delay some spending that isn’t necessary and this goes hand in hand with teaching ‘delayed gratification’. You can also lead by example. Explain to you kids about the things you would like to buy but that you are prepared to wait for. Your kids will learn to plan their purchasing, think longer term and shop smarter.
Money lesson 4: Keep track of money
Knowing the state of your finances is a key life skill. Start your kids young by logging some of their pocket money and spending – creating a simple budget. Use a notebook or a spreadsheet to help their numeracy and organisational skills develop and encourage them to keep it up-to-date.
Money lesson 5: Have a wish list
Kids want everything now. Help break this immediacy with an ongoing ‘wish list’. These are big ticket items that they could save up for or get as a present. When your kids inevitably change their mind on some items on their wish list, remind them that if they had bought it immediately, hey would have missed out on something else. This helps reinforce the concept of ‘opportunity cost’ – every purchase means giving up something else.
Money Lesson 6: Learn the magic of investing
Your kids will likely start off with a simple bank account or Child ISA. As they get older, it’s important to explain that you can put your money away in lots of different ways. If you want to leave it for many years, invest – don’t save. You can start explaining about the risks involved and about the compounding of returns – money makes more money and more. Maybe show them how £100 invested could turn into £200 in 10 years if you invest it well – now that’s magic.
Money lesson 7: Money as a reward
In the real (adult) world, most money is acquired by earning it. Teach this to your kids early. Make them see their pocket money as ‘earned’ and not given by right. This will instil a good work ethical within most children and continually reinforce that money has a value and should be spent wisely as it has been hard earned.
Money lesson 8: Be a little sceptical
Teach your kids that their job is to spend wisely and be wary of companies or people who want to take too much. Explain that it’s a business’s job to get as much of our money as they can – and our job to give away as little as possible to get what we want. This shows the value of money and the scarcity we all have to balance. Trade-offs must always be made but spending wisely means fewer compromises and more of what your kids will love.
Money lesson 9: Share your money
Helping other people makes us happy. It’s a great idea to have your kids donate a portion of their pocket money to charity or local causes. This teaches them that money can be used to help people, rather than just for buying things. Remind them that it’s not how much you give, but the act of giving that’s really important.
Money lesson 10: Learn what makes you happy
Kids tend to want stuff – but study after study show that (for both children and adults) it is experiences that make us most happy. Explain the trade-offs to your kids between a new toy and a fantastic day out. Why not spend their pocket money on a boat trip or a trampolining session rather than the latest action figures? Show them photos of fun activities you’ve done together to re-enforce the notion that activates can be more fun than toys. Show them the unused toys at the bottom of the box and remind them what they could have done instead.
We hope these money lessons have been interesting and useful. Money plays such an important role in all our lives that learning these lessons early is crucial for financial wellbeing later in life. At NorthStar, we are big campaigners for financial education and support the charity MyBnk who do some amazing work with children and other young people.
When it comes to your own kids, start early, keep on educating and never stop. By following these simple lessons, your kids can grow up as the masters of their money – not controlled by it.
Please get in touch if you would like to talk about any of the issues in this article, need help investing for children or have any other financial matters you would like to talk through.