Adult money habits can be set by the age of seven, a new study has shown. With the summer holidays in full swing, teaching your kids some lessons now could pay off in the future.
Budgeting, delayed gratification, saving – these concepts linked to financial wellbeing are typically in place by a young age, according to a University of Cambridge study titled ‘Habit formation and learning in young children’.
The way we talk about money and how we spend it will be one of the biggest influences on our children’s approach to money, according to the study. Kids are social learners, and learn most about most things just by watching and listening to us.
“It’s the approaches and skills modelled, discussed and demonstrated by parents that are most likely to influence their habits and practices,” according to the study, commissioned by the UK’s Money Advice Service.
On the Money: the personal finance newsletter from The Irish Times
Does it pay to invest in solar panels before grants are cut in December?
Food businesses get priced out: ‘I have been a chef for over 25 years and it’s the hardest it has ever been’
Inheritance tax is a real bugbear for people who do not have children
But as well as being conscious of what they are soaking up at home, we can also give children opportunities to practice and learn with money. That means letting them make mistakes too.
1. Put them on the payroll
Getting kids to do small-scale ‘jobs’ around the house for pocket money is a great way to start to teach the concepts of earning and income, according to the Cambridge study.
Of course they would rather play football than vacuum the sittingroom, but that’s work for you. Giving up time and effort for a monetary reward is how most people pay their bills.
Don’t expect that younger children are grasping the concept of a wage, however. They are more likely to see pocket money as a sign of parental approval. The financial significance of the money itself isn’t understood until early adolescence, according to researchers.
If your kids have savings, talk to them about their choices – an ice cream on Friday, or a pricier magazine at the end of the month
2. Supermarket sweep
Shopping is easier without the kids, but including them now and then can make for a great money tutorial. Start by getting them to help make a list of what’s needed. They see that a list helps you to prioritise and to plan how much to spend. They will also see that the inflatable tent in the middle aisle is not on the list.
“Becoming aware of price labels on items, comparing prices, choosing less expensive items or that are ‘on sale’, deciding which size packet to buy, how many packets and how much money to spend may be decisions in which the child can observe or participate,” says the research.
3. Show me the money
It’s hard to explain money to children who rarely see it. Since the introduction of contactless payments in 2012, we’re all seeing a lot less of it. Payments these days by card, a phone or a watch are invisible. Birthday and Communion fivers are more easily gifted by app.
Withdrawing notes from a cash machine or counting out change at the checkout used to provide children with a visual lesson. These days, your children see you tapping a card and getting products and services for seemingly nothing, says the Money Advice and Budgeting Service (Mabs).
That’s why it’s important to take the time to show them how money and debit cards work. The tap of a card means money is leaving your account, and that in turn means you have less of it.
The latte levy: ‘Consumers want to do the right thing’
4. Money talks
Children are listening, so be mindful of how you talk about money. If the kids are lobbying for an expensive trip, there are different ways to frame your refusal.
Saying “We don’t have enough money” can convey anxiety about money, or a lack of control over your financial situation, according to parenting website Parents.com. Instead, use the moment to show that it’s important to be thoughtful about money choices.
Saying “That’s not how we chose to spend our money”, “I don’t think that’s good value for money” or “We’re choosing to save instead” will convey how you prioritise your spending.
5. The €2 shopping trip
You probably wanted to delay this, but getting kids shopping themselves is a great way to teach them about money. If they want something, the money in their piggy bank needs to be given up for it. Money can be spent only once. Once it’s gone, it’s definitely gone.
So they want more sweets after buying and eating their jellies? Or maybe they’ve changed their mind and want something different without paying out more money for it? That’s not how money works.
A shopping trip reinforces the concept of exchange, according to the Cambridge study. Giving your child the option to spend it on a toy or in a sweet shop means they need to focus carefully on what they really want so they won’t be disappointed later.
It’s going to be hard, but allow them to buy the toy that will break in a day or the chocolate that will be forgotten in an hour. Let them make mistakes.
A trip to put money into their account can be exciting for a child, and positively reinforces the importance of saving
6. Start saving
Are we there yet? Anyone with children knows time is tricky for them to measure and understand. Waiting is particularly hard. It’s no surprise, so that the idea of saving their money instead of spending it can be tough for them to grasp.
A concept of ‘the future’ is fundamental to many aspects of financial understanding, according to the Cambridge study. The process of saving requires a child to have a sense of their future self. Not easy.
Financial wellbeing is improved by two key behaviours: ‘active saving’ and ‘not borrowing for daily expenses,’ according to research by the Competition and Consumer Protection Commission (CCPC).
That’s why teaching your child about saving is important. Start off with a clear piggy bank, so they can see their savings physically build up, advises Mabs.
As they get older, look at opening a savings account. AIB has a Junior Savings account offering a rate of 2 per cent up to €1,000, with instant access to funds. Local credit unions are often open on evenings and weekends, making it easier for parents and children to make a ritual of it.
A trip to put money into their account can be exciting for a child, and positively reinforces the importance of saving, according to the CCPC. Explain how their balance will increase with deposits and interest.
You can dabble in virtual banking too. Kids aged 6-17 can open a Revolut <18 account linked to their parent’s account with a card for the child. They can spend the funds you provide, check their balance, and use age-appropriate money management tools in the app.
Allow them to buy the toy that will break in a day, or the chocolate that will be forgotten in an hour. Let them make mistakes.
7. Delay gratification
Adults find it tough to plan and delay gratification, never mind children who may not be developmentally ready for it, so go easy on them.
Five-year-olds can’t distinguish between two days’ time and two months’ time. They start to get the hang of it by about the age of eight, according to the study.
You can make the concept of saving for something in the future more concrete for kids by measuring it in a way they will understand. So that’s ten more sleeps until they can blow their money on Pokémon cards. They could make a savings chart too, where they can colour in the coins as they save them with those yet to be saved remaining uncoloured.
If they have savings, talk to them about their choices – an ice cream on Friday, or a pricier magazine at the end of the month. They may learn that being patient can mean better rewards later. Just let them decide.
Support them to exercise conscious control over their own decisions rather than choosing the most immediately attractive option.
8. Window shopping
Many children will experience an occasion where they or a parent can’t afford something. That’s normal.
Window-shopping provides good opportunities to discuss not being able to afford everything you want, but that another individual possibly can, says the Cambridge study.
Talking about the different types of work that adults do, and the different amounts of money that are awarded for them, is a valuable way to raise children’s awareness of “earnings”, says the study.
It’s hard to explain money to children who rarely see it. Since the introduction of contactless payments in 2012, we’re all seeing a lot less of it
9. Opportunity cost
When we buy something, there can be added costs. Owning a car means paying for fuel, insurance, tax and NCT. If you splash out on rollerblades, you’ll need to buy a helmet and maybe some knee and elbow pads too.
Going to see a movie? Then take the opportunity to talk about the bigger picture. The cost is not just the price of admission, but petrol for the car, snacks and drinks, time and energy. Talking to children about these things will help them to be more aware of the overall cost of financial decisions, according to the Cambridge study.
10. Get involved
Young kids don’t give two hoots about money. If they are given pocket money, a piggy bank or savings account, it’s really a parent or grandparent’s attention that will get them interested, says the research.
The enjoyment of doing something with the parent or grandparent, the familiar habit of doing the weekly shop together or the feeling of mastery in participating in “adult” activities, like going to the Post Office, give children plenty of incentive to learn about money.
