Building financial confidence: how to talk money with kids

Many lifelong financial habits are in place by the age of just seven, highlighting that it’s probably never too early to start talking to kids about money. Obviously, jumping straight in with your take on the latest interest rate decision isn’t going to win over any youngsters. But once you scratch the surface, especially if you’re talking to a child who hasn’t really thought about money before, then it can genuinely become a fun and interesting topic.

The Importance of pocket money

Experts recommend giving children regular pocket money. The amount doesn’t matter nearly as much as the habits formed by knowing money comes in on a certain day or date. Figures from credit reporting firm Experian found that more than half of parents (51 per cent) who gave pocket money did so to help their child’s money skills. But at the same time, 30 per cent of parents felt they were held back by their own lack of financial confidence, or resources to help them offer guidance. So talking to children about money can not only help the next generation feel more confident, it could also create opportunities to learn together.

Understanding money is finite

From age seven, most youngsters can understand that money is finite. They can also grasp the idea that borrowing cash means you’ll be expected to pay it back at some point. Seeing the adults around them using a credit card is a good way to introduce this idea, explaining the reasons why we use credit and outlining the basic pros and cons.

For growing numbers of children, sadly, money in their household is scarce and that’s likely to be something they’ll be aware of from an early age. But for others, discovering that spending too much might mean the pot runs dry – even for adults – can be a profound lesson. That’s when the concept of prioritising can come into play. At this stage it’s probably enough to boil it down to ‘needs’ versus ‘wants’. This works for the household budget as well as for their own pocket money. Although they’ve probably never thought in these terms, it’s pretty easy for them to understand that paying the rent or mortgage is more important than treating the family to a takeaway. From there, the conversation can easily move on to their own needs and wants. (Quick heads up, their bar for what constitutes a ‘need’ can be very low!)

Learning through spending and saving

Priorities don’t have to be about the macro. Supermarkets tend to put their cheaper options on the bottom shelves where shoppers can easily miss them. By using a little person to spot bargains, adults can help their child feel part of spending decisions. Going back to pocket money, tying their payments to chores and boosting their cash if they do extras can really help to focus a child’s mind. For something they desperately want, sacrificing some free time to help out in the house is a no-brainer. And the idea of patience – even if it’s just waiting a day or two to be able to buy something – might be more alien to today’s kids but it’s still important.

Advice for older children

Between the ages of nine and 12, youngsters are able to understand more complex ideas like value for money, and with stronger maths skills they can start to get their heads around how interest works. If they’re already familiar with credit and saving, they can begin to form a better picture of how interest can work for them, as well as against them. They can also have a bit more freedom with their money. It might be painful to sit back and watch them make a poor money decision, but safe and low-level spending blunders are often good learning experiences!

Navigating the digital financial world

As with tech and the online world, some aspects of finance that kids are exposed to will be a new and scary landscape for parents. Buy Now, Pay Later, crypto, phishing, smishing, vishing… It’s no wonder lots of adults don’t feel confident in these choppy waters. But researching things with your child will leave both of you in a better place.

Handling tough conversations

And what about those really difficult, emotional, conversations? Like having to explain that money is too tight for the things they want. It’s natural to want to give the kids you love the things they’d like. But when it’s a stretch too far, it ends up making everyone’s life tougher further down the line. It can be comforting to remember that (despite what kids say!) you’re not the only one saying no, especially right now. Being open about this can be helpful, not only in terms of managing expectations, but it can also ease any secret worries kids may have about the family’s money. Setting limits before leaving the house can also prevent a public standoff where you’re pestered to spend more than you can afford. Offering X in advance while being clear that Y is off the table should sweeten the deal – and you can remind them of it if they start to get upset.

A new perspective on money

Guilt and shame can be so tied up in money matters, sometimes with disastrous consequences if it stops someone seeking help with debt. But with the next generation, there’s the chance to avoid negative feelings becoming baked into their money habits and behaviours. Whether it’s because money’s short, or even because it’s plentiful, thinking of cash in neutral terms free of value judgements is a happier and healthier starting point.

The great thing about starting money conversations with kids is that there are literally hundreds of opportunities to do it. Everyone makes decisions about money and spending every day, so there’s always something age-appropriate to bring children in on. Do it little and often, be as honest as you can and strip out the emotion – the results should really pay dividends.

It’s no secret that lots of adults lack the confidence to feel secure in their money decisions. There’s no shame in this, very few of us were taught anything about the financial world at school. The Money Helper website (moneyhelper.org.uk), is run by the government and Money and Pensions Service and covers the very basics right through to specific advice on debt and the cost of living. It also uses plain language to cut through the jargon and has a handy section on speaking to kids about money, broken down by age group.

Don’t miss The Big Issue’s kids’ money magazine, in our March 4 issue. We teamed up with The Week Junior and Social Enterprise Academy for this must-read mini guide to saving, spending and earning, specifi cally for a young audience.