Teaching money to our kids

As a parent, teaching money to your kids is probably one of your biggest and most baffling responsibilities. It's so important, though, that you start these lessons young.

This way, your kids will be able to manage money well as soon as they move out on their own. If you made money mistakes as a university student or a young adult just starting out, you know how important it is to learn money management early on in life!

Many parents rely on the old concept of pocket money and summertime jobs to teach teenagers about handling money, but teaching money should begin much earlier.

Even five and six year olds aren't too young to learn about things like saving money and spending only what they have. When they're older, these lessons can translate into lessons about compound interest, credit and debt. Here are a few ways that you can start teaching your kids about money today.

Experiential learning

Most kids learn things best by experiencing them. One way to give your kids life lessons abou budgeting is to give them a budget early on.

Next time you take your ten year old on holiday, give her a certain amount of money for her meals, tickets for museums and such, and souvenirs. You will obviously have made sure that there's enough to cover everything, but she will have to figure out how to use it. Tell her that once she runs out of money, you'll make sure that she gets enough to eat, but it will just be sandwiches from the supermarket.

As she is on holiday, check with her frequently about how much money she has left, and let her know ahead of time how much certain necessities will cost. If she makes a mistake, let her so that she'll learn from it. Chances are likely that the first time you do this, your child is going to end up eating sandwiches for the last day or two of your holiday, but on the next holiday, she'll remember how to use her funds wisely.

You can take this same concept and apply it to older children and teenagers. Shopping for clothes is a good example. Next time your teenager needs a new set of clothes, you should estimate how much you would spend on them. Give your child that much money when you go shopping, and tell him that it's his to spend. If he runs out of money before he gets everything he needs, he'll have to live without it or return something else. Remember that teaching money means letting your child make mistakes with it sometimes!

Real scenarios and working examples

Teaching kids about budgeting is probably easier than teaching them about concepts like compound interest and debt. One way to talk about these things, though, is to just use the numbers. You'll have to wait until your kids are old enough to understand more than the most very basic maths problems, though.

Write out a scenario for your child. Say she starts saving £15 a month from her part-time job. Walk her through what will happen to her money if she leaves it in a savings account. Use different rates of return that are close to what she could get at banks in your area, and leave the money in the account for different amounts of time. Watch the look of amazement on her face when she sees what £15 a month could become in ten or fifteen years.

You can use a similar technique with teaching about debt. Talk your son through a problem showing just how much interest he would pay over the life of a car loan. Before she goes to university, show your daughter on paper how long it would take to pay off a credit card if she charged "only" £500. Seeing the numbers on paper can really help your kids.

Teaching money to your children can be a difficult thing to do, especially since many money-related concepts are difficult for even adults to grasp. All you need, though, is a little creativity and practice, and your kids will learn how to handle their money at a young age. Doing this for your children will set them up for financial success in the future.