Make every cent count: How to teach your children about money

Start children young if you want them to be money-savvy, agrees Ann-Marie Gaynor aka Irish Budgeting Mammy. “Teach them the basics from when they’re quite small. From when they’re about three show them what money means. Show them the notes and coins — ‘this is €1, this is €2’. Get them to count. Play shop with them — give them physical money.”

And set a good example. “If they see you using money, counting it out, getting change back, they’ll get a grasp of how money is spent, better than if you’re continuously tapping your card,” says Gaynor, who advises parents to explain how money comes ends up in a bank machine.

“Explain that you go to work, you get paid, your employer puts that money in the bank for you and this is what you get from the bank machine. If there’s no money in the bank, there’s no money in the machine.”

Deputy director of communications at the Competition and Consumer Protection Commission (CCPC), Muriel Dolan says children need to be taught the value of money if they’re to develop positive financial habits. “Children receive money from an early age — for birthdays, as pocket money. Even adults don’t place the same value on gifted money as we do on earned money. A simple way to teach children the value of money is by having them earn their ‘pocket’ money by doing age-appropriate chores.”

This, she says, allows children to form a link between working and income.

Transparent savings

Gaynor urges teaching them to save from an early age — but keep it visual. “Use a clear jar. We all give them piggy banks but they can’t see the money rising. With a clear jar, they can. You can also use post-office stamp cards,” says the mum-of-four, who found these worked great for her 11-year-old daughter, Robin.

“It used to be that even when she was saving, she’d be dipping into what she’d saved to go to the pound shop. I got her to buy savings stamps in the post-office. She buys one for €1 and sticks it in a card and when she has 20, it’s full. Now she counts how many she has saved and goes around the house looking for change to buy her stamp, usually one a week.”

Dolan points to CCPC research among adults, which found that financial well-being is improved through two key behaviours: ‘active saving’ and ‘not borrowing for daily expenses’.

“The bank, credit union, post office — all offer junior savings accounts. A trip to put money into their account can be a very exciting event for a child and positively reinforces the importance of saving,” says Dolan.

Another option is a savings account with a fintech company. “Some offer junior savings accounts, e.g. Revolut has an account for six to 17-year-olds called Revolut <18. This option teaches children about banking online from an early age.”

Karen Jordaan, Head of UK WorldRemit, an online money transfer service, says getting children a digital savings account prepares them for a future reality, where they’ll be doing most of their banking online. She encourages parents to look at the monthly statements with them.

“Explain how the account grows because of deposits and interests. Encourage your older children to put larger sums away for something they really want like a new bike or computer.”

Saving, she says, teaches children that self-discipline and goal-setting can be rewarding.

Dolan recommends setting savings goals but keeping them short-term. “These can range from buying a new toy they want, equipment for a hobby or saving for their summer holidays. Meeting these goals gives children a sense of achievement and encourages them to continue to actively save for things they want.”

She also encourages incentivising them to save. “Tell them: ‘if you save 50% of the cost of what you want, I’ll give you the other 50%’.”

Needs and wants

It’s important to teach children the difference between needs and wants. “For example, you can help them understand that if they buy the toy they want now, they may not have enough to buy the new football boots they need for next season,” says Dolan.

“Understanding the difference between needs and wants as children will help them, as young adults understand how decisions made in the present can affect future savings goals.”

Gaynor asks three questions if her children are expressing a want — rather than a need. “If they want a toy, I ask: ‘Do you really need it right now? Can it wait until next week? Is anything bad going to happen between now and then if I ask you to wait?’

“I explain that paying for food, the mortgage, for electricity, is about needs — we need these to live. Whereas PlayStation and toys are wants.”

She also believes in teaching that it’s important to cut back on small things so you can then spend on something bigger. “Three years ago, I did a lot of cutting back and I explained to the children that we were going on a once-in-a-lifetime backpack trip around Thailand. So we cut back on takeaways. We didn’t do any day trips that year because we were saving up for this bigger trip.”

Learning to budget

Dolan points out that a big challenge young adults face once they leave home is budgeting. By teaching them to budget early on, she says we give them a tool that’ll really boost their ability to manage their finances when they’re older. “Show them how a budget works. Bring them along to do the food shop. Get them involved by making a budget and explaining you’ve a set amount of money to spend on a list of things.

“Allow them to check and compare prices and add up the cost to see if there’s enough money and, if not, what can be done to stay within budget. You might, for example, say ‘this toothpaste is half-price — maybe we’ll get that today and save some money’. Doing this allows children to see how money works day-to-day.”

And don’t be afraid to say ‘no’, says Gaynor. “It’s OK to say no. Explain why: ‘it’s not in this week’s budget — maybe next week I’ll budget for it’.”

Gaynor likes to explain financial concepts to children in an age-appropriate way — such as how credit works, how loans work, what tax is, and the hidden costs involved in running a house. “You can make it light but put into the conversation things like house insurance, car tax, NCT costs.”

As children reach their teens, Gaynor advises letting them make their own mistakes with money so they “learn the consequences of their actions” around spending. And she recommends teaching them the “philosophy of an emergency fund”, even if it’s just €20. “Tell them never to go below that amount so, for example, if they need phone credit in a rush and you’re not there, they can get it.”

Money is a wide-ranging topic, and knowing how to manage it is a lifelong skill. But it needs to be taught from an early age. As Jordaan says: “Financially responsible adults don’t just emerge like butterflies at the age of 18, they need a little help to find their wings.”

Financial advisor Eoin McGee has created a series of videos with the CCPC (moneymatters.ccpc.ie/parents-hub) that can be used to help teach children about money.