How to Help Children Learn the Value of Money

The value of money can be one of the toughest things to teach children. Realising that the money in your hand won't buy every beautiful new toy you'd love to buy in the shop is so hard.

Just how can we help our children learn the value of money? Not in a maths book, but in the cold hard reality of wants, prices and budgets?

I remember being in a wonderful toy shop with Lara when she was around 6 years old.

She had two crisp ten pound notes burning a hole in her purse and was surrounded by beautiful dolls, wooden toys and myriad other things she would love to play with.

She deliberated for ages over the proper handmade, old-fashioned rag dolls, deciding which was her favourite; but then there was the stall of wooden fruits and vegetables; the adorable miniature doll's house that would look beautiful in her dolls' mansion; and, oh no Mummy, they've got Sylvanians too!

A hard lesson, deciding what exactly she could get for her £20.  Of course, thinking it was all adorable too, I was sorely tempted to up her budget, but would that be the right thing to do?

Teaching kids about money is definitely one of the tough challenges of parenting.

Is giving them pocket money the best way to help children learn, or should they earn it? Or should you save their money for them?

How do you show them how to make those tough financial decisions to set them in good stead for later?

Read on to find out how to help children learn the value of money.

1. Talk Money

Talk to your children about money from the earliest age, show them your notes and coins and let toddlers hand over the notes to the shopkeeper.

Give them a few pennies from the change to start saving in their piggy bank.

As soon as they can count and do simple maths processes, get them involved.

Encourage your child to check your change, or add up a shopping list, working out how many items you can buy for a set amount.

2. Value Money

Equally, talk to them about your money values, explain what you are saving for and why.

Talk about how you can save the money up, and model how to make wise spending decisions on your saving journey.

At the supermarket, show them how to compare products and prices - is the brand really worth twice the price of the standard product?

Is a packet of 5 chocolate bars better value than two single ones?

3. Channel Maslow

Explain the basics of Maslow's Hierarchy of Needs to your child.

Show them how well off the majority of us are in the west with a roof over our heads, clothes in our wardrobes, and food in our cupboards.  Anything else is just a want.

After all, no-one actually needs a car/iPhone/games console/holiday, they are just wants.

Help your child to learn the difference between needs and wants, preparing them for making good spending decisions - and avoiding peer pressure - in the future.

4. Set Goals

Stick to the rule that toys from you are for birthdays, Christmases or other special occasions.

Other than that, your child needs to buy their own wants at the toy shop or even the supermarket.

Show them how to set a saving goal and work towards them.  How many weeks pocket money will they need for the latest want-want-want toy?

Delayed gratification is tough, but goal setting helps children and young people learn the value of money, how to save, and ultimately helps them to become responsible for their own financial future.

5. Save a Percentage

Even if they have no savings goal in mind at the moment, encourage your child to save a certain percentage of their pocket money or allowance for future purchases.

Giving pocket money in smaller denominations can help with dividing it between spend and save pots

Ask your child to go to the bank or building society with you to pay their money in each month, and ask the financial provider for an old-fashioned savings book.

Seeing the numbers go up after each deposit is a great incentive!

6. Give Them a Boost

You could also take the opportunity to teach your child about interest and offer to pay interest at home - that compound interest thing will be a revelation!

Many parents also offer to match everything their child saves, a time-honoured way to get the saving bug started.

Older children could also be encouraged to do small jobs and chores for extended family, friends and neighbours.

Car washing, dog walking, and small gardening jobs are good ways to start.

7. Get Them Involved

Don't hide family finances from your kids, however good or bad they might be.

Show them how you budget, save and plan for the future.  Talk to them about any mistakes you've made in the past and illustrate how you will change things in the future (not with a longed-for lottery win!) 

Show them the records you keep, how you plan for big purchases or manage the monthly household accounts.

8. Budget, Plan and Model

Food shopping is the ideal classroom for learning the value of money.

Talk about how you make purchasing decisions - spending 80% of your budget on chocolate biscuits may be fun but not ideal.

Give your child a small amount and ask them to choose the fruit or treats for the week for the family. 

How far will their budget stretch?

Demonstrate how to meal plan, how to write a shopping list, how to use up leftovers, how to find worthwhile deals and bargains etc.

9. Make Mistakes

Be open about mistakes you have made, both in the past and the present.

Maybe that canary yellow raincoat wasn't the bargain it seemed in last year's sale?

Or were the 5 pack of school shirts such bad quality that they only lasted 5 minutes?

Allow your child to make mistakes too.  Don't criticise or do an 'I told you so', but do discuss the pros and cons of the purchase with them, and work out how future spending could be better.

Encourage them to research before making major purchases, wait for the right time to buy, and employ the spending-by-choice technique, selecting at least three other things money could be spent on once it has been decided to make a purchase.

10. Help Them Develop a Critical Voice

Advertising is glamorous, inviting, exciting and very, very seductive.

One of the best things you can do for your child is to teach them how to evaluate adverts on television, social media, and in print.

Encourage them to ask pertinent questions about the product and the message being conveyed.

Is it really that good?  Will the product perform as the ad suggests?

Are all things shown included in the price?  Is there something better out there?

Do they really need the XXX toy or trainers, just because their friend wants them?

Make charity shops and car boot sales an acceptable hunting ground. After all, why pay full price if you can get it for less?

11. Keep Talking

Explain why credit cards and loans are a bad idea in most cases.  Explain that credit is effectively renting someone else's money, and the costs for this can be extortionate.

If possible, it is far cheaper to save up rather than borrow.

If you use credit cards carefully (paying off the balance in full each month), explain to your child how and why you do this.

But beware that the credit message is usually a big shiny, flashing !!!SPEND!!! sign and this can be difficult for teens and young people to resist.

12. Lead by Example

Lead by example, for example, don't use shopping trips as a fun leisure activity, constantly replacing technology, or making frivolous purchases for your self-esteem and image.

Show your children by example that what you buy and spend doesn't determine who you are.

Make financial conversations a regular and normal part of your family life.

Increase pocket money each year, and encourage children to save a proportion of any birthday or Christmas money received.

Talk to your children about bigger fiscal matters too, about inflation, GDP, and other economic issues, both macro and micro.

Financial intelligence is one of the most important things you can teach your child and, whatever your financial circumstances, it will help them to have a better future.

Take some time each week to move them forward in establishing good habits.

And what of Lara in the toy shop?

Clutching her £20, she bought some lovely things for her dolls' house (£7.50) and pocketed the rest of the money.  "Well, I might see something else tomorrow, Mummy."

I guess we must be doing something right!

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