Introducing your child to money

Teaching your children to become savers and investors will enable them to keep more of the money they earn, and do more with the money they spend, in future years.

It is a good idea to introduce your children to money as soon as they can count. Help them to discern the difference between needs, wants, and wishes.

Help them to set goals. The goal could be that new doll, or that computer game which every child is after. Goal-setting helps children learn to become responsible for themselves.

Introduce them to the value of saving versus spending. When giving children pocket money, give them the money in denominations that encourage saving. If the amount is £2.50, give them 5 x 50p pieces and encourage them to set aside 50p in savings.

Explain the concept of earning interest on savings. To help them understand, you could pay interest on the pocket money they save each month. Some parents offer to match it. Take your children to a bank to open their own savings accounts. Beginning the saving habit early is one of the keys to savings success. However, don't stop them withdrawing some of their savings for a purchase - that might be counter-productive, and discourage them from saving at all.

Show your children how to keep a proper record of money saved, invested or spent. Demonstrate how to establish a system. For example they might place receipts from all their purchases, and keep notes about their spending, in a separate envelope for each month of the year.

Shopping trips provide useful opportunities for teaching children the value of money. Going to the supermarket is often a child's first spending experience. In the average household about 1/3 of our take-home pay is spent on grocery and household items. Prudent spending in the supermarket; using coupons, 2 for the price of 1, and other promotions; can save a family several hundred pounds a year.

Demonstrate how to plan economical meals, avoid waste, and make good use of leftovers.

When you go to buy larger items, take your children along with you. Explain how you planned the purchases in advance. Make your price comparisons explicit, and demonstrate how you check for value, quality and warranty. When children are allowed to make their own spending decisions they will learn from their mistakes and successes. Talk about these before further spending takes place. Encourage them to do their research before making major purchases, and wait for the right time to buy.

Show children how to question the claims of commercials. Is the offer really a sale price? Will the product perform as it is claimed it will? Are there any alternatives that will do a better job, or offer better value? Teach them the truism that 'if something sounds too good to be true, it usually is'.

When paying by credit card at a restaurant, take the opportunity to teach children how they work. Show them how to check the bill, how to calculate the tip, and how to guard against credit card fraud.

Be cautious about making credit cards available to young people. Credit cards encourage spending. Many young people find themselves having to take part-time jobs just to pay the interest!

Lastly, and most importantly, demonstrate the value of giving. If you participate in the Payroll Giving scheme talk about how you give and why. Encourage in your children the habit of giving a percentage of their 'income' to others less fortunate than themselves on a regular basis.

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