How to talk to your kids about money

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Early maths lessons may teach our children how to work out their change after buying something, but kids don't learn a great deal about how to actually deal with money in the classroom.

Teaching kids to really understand money – not just what it is and how it works, but what it means, where it comes from, how to use it responsibly, and the consequences it can have – is something that parents should work on from an early age.

Introducing the cash

Starting the conversation with your kids should definitely happen before they start school.

Something as simple as taking your children with you to the shops and explaining what you are doing as you pay will help them start to grasp the connection between the things they want and the shiny coins and notes that come out of mum or dad's pocket.

Playing shop games at home can help too, particularly with understanding the value of coins. Kids will naturally assume that larger coins are worth more, so explaining why 20p is more than 10p may take some doing.

Letting them play the shopkeeper is a great way to help them understand that different things, and different coins, have different values.

Back at the real shops, talking about your choices with your kids while they're in a receptive mood – saying things like "this costs too much,"  "I don't have enough money, I'll have to get it next time," or "I can afford more of these because they're a lower price" will help get them thinking.

Expose them to everything

Don't just take your children with you when you spend money, though. Make sure they start to see every aspect of how it works.

Take your kids to the bank with you, and explain that you're saving money there for safe keeping.

Talk to them while you're budgeting, and explain that you're working out how much money you have to spend – just like they do with their pocket money. Speaking of which…

Pocket money

The topic of pocket money always leads to debate amongst parents. Is it a good or bad idea?

The very small amount of scientific research done on the topic says yes. As cognitive scientist Denise Cummings writes for Psychology Today, a 1991 study – the only of its kind – found that receiving an allowance does impact a child's financial responsibility.

When giving an allowance, you have two choices – you can either hand it over, or make kids work for it.

Doing chores around the house in exchange for pocket money is a great way to teach the link between doing work and getting paid – even if they grumble about it.

You might find it works best to give your children a smaller allowance that is increased by helping around the house.

Talk, talk, talk

Most importantly, you will need to keep the conversation going. And it should be a conversation, not a lecture!

If your kids have questions, that's great – try and answer them truthfully. You might be surprised how much children can understand, so don't feel like you have to talk down.

Think about what you're going to say carefully, to avoid putting across the wrong message.

Of course, your kids will learn by watching you, so if you have any bad financial habits of your own then you run the risk of passing them on.

It’s important to practice what you preach and, when you're teaching children the importance of money, to remember that you shouldn't buy what you can’t afford, and to think carefully before taking out a loan for any non-essential purchases.

Starting to teach your children about finances is a perfect reason to give your own relationship with money a refresh and will help you both in years to come - especially when your children start University!

For more information on talking to your children about money, take a look at the great teaching resources provided by the Personal Finance Education Group and the Guardian.

Alternatively, for more money saving tips, check out the rest of our blog.

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    How to talk to your kids about money