1. Introducing your children to money
It's natural for your children to be curious about the things that are important to you - like the remote control or your mobile phone - and money is no exception. This means that introducing your children to the role that money plays in your life and the importance of being careful with it can be done at a relatively young age by:
Sorting spare change...
Encouraging your children to sort through the contents of your spare change jar is one way to get them started. Not only will this get them used to handling and counting money, but it will also give them an idea of its different denominations.
A quick browse through any children's store will show the continuing popularity of 'shop' themed toys. This can be a fun way of introducing your children to the concept of money in action. Whether they're butchers, bakers or candlestick-makers, playing shop can show your children how buying and selling works and also that different items have different values.
Visiting the supermarket...
Most of us take our children with us when we go to the supermarket and this is a natural environment for introducing them to the value of money. Use different items like toilet rolls and chocolate biscuits to highlight the difference between necessity and luxury goods. While highlighting the difference in cost between own brand goods and branded goods would be a good way of showing your children how to make their money go further.
If you're paying cash then letting your children count out the money and hand it over at the checkout will help them get used to handling 'real' money. When they are a little older, why not try giving them a fixed amount of cash and let them do their own shopping - under your supervision, of course! This is a great way of getting them used to budgeting.
Buying penny sweets...
Alternatively, many newsagents still have penny sweet counters and this can also be a valuable learning ground for your children when it comes to budgeting. Try giving them a fixed sum to work with and see how they get on with trying to get the most sweets for their money.
2. Learning the value of money
Once your children understand what money is used for, the next logical step is to teach them where it comes from. For the sake of your future finances, debunking your children's belief that 'money grows on trees' should be tackled as soon as possible.
It is important to establish the relationship between work and money early on. Originally an American phenomenon, 'bring your children to work days' are now growing in popularity over here and can be a good way of introducing your children to the concept of work. However, the best way of establishing the relationship between earning and spending money is good old-fashioned pocket money.
3. Giving your children pocket money
Pocket money is an excellent way to teach your children the value of money and it also gives them a real sense of independence.
How you issue pocket money to your children is very much down to your own preference. Some parents give their children a weekly allowance, while others prefer to offer pocket money in return for doing chores around the house (this doubles up as a way of getting your children used to responsibility too), or as a reward for good behaviour. The chores you give your children will depend very much on their age and could range from tidying up their room to washing the family car. Again, rewarding your children for performing chores will help reinforce the relationship between working and earning.
Children being children will no doubt want to rush out and immediately buy the latest must-have toy or gadget. This shouldn't be discouraged (at first!) as impulsively buying something which they then become bored with after a couple of hours will teach them a valuable lesson - spend wisely!
Encouraging your children to write a list of things they would like to buy is a good way of getting them to think about what they are spending their hard-earned pocket money on. Getting your children to ask themselves 'Do I really need this?' every time they spend can be a valuable lesson in avoiding debt in later life.
4. Teaching your children to budget
Giving your children pocket money also presents a good opportunity to teach them about budgeting and the importance of making your money go as far as possible.
Be consistent with when you issue your children with their pocket money by paying out on the same day every week. If Friday is pocket money day then always try to pay-up on that day. This will help them get used to receiving a regular income in very much the same way as we adults receive our monthly or weekly pay packet.
You should also be clear on what your children can use their pocket money for. You might agree that your children can buy a certain amount of sweets each week, but that you will no longer be putting a packet of Haribo in with the weekly shopping.
As we all know, the secret to budgeting is to make your wages last until the next pay day and avoid having to take on debt. Because of this, it is important that you stay strong and don't give into 'pester power' just to get some peace. Don't give in and agree to top-up your children's allowance when they go out and blow it all on the first day. You will only be undermining the whole concept of budgeting - unless, of course, you charge them interest...!
5. Encouraging your children to save
Of course your children shouldn't be encouraged to go out and spend every last penny of their pocket money just for the sake of it. Simply placing their left-over coins in a piggy bank each week is good way of introducing them to the concept of saving.
You should also teach your children that what they are able to buy is limited by the size of their weekly allowance, but if they began saving their allowance instead of spending it, they would soon be able to afford more exciting (and expensive) items.
Encourage your children to save by getting them to identify long or short-term goals of things that they would like to buy. If they are saving for something exciting like a bike or games console, then you could give them further encouragement by agreeing to match whatever they save and meet the cost half-way.
Raising your children is not getting any cheaper and setting up a savings account to help pay for things like education, is something that is best done as soon as possible. Once they are old enough, it's a good idea to open a savings account that they can manage for themselves.
Opening a branch account would give your children the opportunity to go in and physically pay their money into their savings account. Of course, with using a computer now second nature for many children, opening an online account may hold more appeal for them. Either way, receiving regular statements can help your children to see how much their savings have grown over time.
This is a great way of introducing them to the concept of interest as a 'reward' for saving and illustrating the importance of getting the best rate of interest that they possibly can.
Why not check the interest rate together when your children transfer the contents of their piggy bank into their savings account so that they can used to the habit of 'account maintenance'? Familiarity with the idea of being proactive in making your money work as hard as possible will stand them in good stead for the future.
6. Teenagers and working
As every parent knows, things can get a lot more complicated once your children become teenagers. As peer pressure kicks in and your children's taste for fashion and gadgets becomes ever more expensive, you may find that their weekly allowance is no longer stretching as far as it used too. But remember to be sympathetic - we were all teenagers once and there is a lot of pressure to fit in!
If your teenager is struggling to make ends meet - even with careful budgeting - then if they are 14 or over it may be time for them to consider getting a part-time job. Whether it's sweeping hair up off the floor of a salon or washing dishes in a hotel kitchen, learning that they may need to do something that they don't particularly enjoy in order to pay for the things that they do, will certainly drive home to them the value of money!
Even if your teenager is supplementing their allowance with extra income it may still be necessary to establish spending limits on items. They may feel they need the very latest £150 pair of trainers in order to fit in with their mates, but who is going to pay for them? If you agree to pay £40 towards them and your teenager realises exactly how much hair they are going to have to sweep up in order to pay for them, maybe they won't seem so 'must-have' after all.
This is a good time to emphasise to your teenager how important it is to be a 'clever consumer' - that companies are there to part you from your hard-earned money and that it pays to shop around rather than stay loyal to brands. Show them that by being 'smart', your children can get much more for their money.
7. Setting students up for life
Hopefully, all your teachings regarding the value of money, its relationship with working and the need to save and budget will have hit home by the time your children leave home for university. Nonetheless a timely reminder that by the time they will graduate the average student expects to of amassed debts of somewhere between £15,000 and £20,000, should do the trick.
Despite the difference in your child's age, the same principles that you taught them about handling their pocket money still count. Now is a good the time to reaffirm those lessons, namely: the importance of budgeting; knowing the difference between luxuries and necessities; and, most importantly for parents, not to be tempted to top-up your children's allowance or Student Loan up when they run out.
Teaching your children the difference between 'good debt' and 'bad debt' is also very important as students are often aggressively targeted by banks. For example, highlighting the difference in costs between an interest-free overdraft and a credit card with 17% APR - and what this means for their borrowing - could save them a lot of financial problems in the long run.
They should also beware that going overdrawn or running up other forms of debt could damage their credit rating. Failure to meet their repayments could harm their chances of getting credit in later life and leave them with a hefty bill once they graduate.