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We all want to see the children we cherish grow up to lead happy, stable and productive lives. Whether those children are your own or those of friends or family, you’ll want to ensure that they’re well equipped to face the future.
Along with health and education, financial literacy is a core component of future happiness. But it can be hard to come by. “Often there is a lack of focus on this in the school curriculum,” says Dr Juspreet Dhanoa, a clinical psychologist with Amplify, Investec UK’s in-house psychology team. “So having conversations with children about finance can be a great way to lay a strong foundation for money management later in life.”
At a time when inflation and economic challenges are in the news, young people may have questions about what this means for them or people they know.
Here are seven tips for how to discuss money with the children in your life.
1. Start early
“Starting conversations early, when children are preschool or primary school age, allows them to begin to develop a healthy relationship with money and fosters responsible financial behaviours as they age,” says Dr Dhanoa.
With younger children, simplicity is the best approach. “It can be helpful to think, ‘What are the key messages I want my child to hear?’ she explains. Less is often more, so focus on two or three key points and keep the language simple. Begin with teaching them about basic concepts such as saving, spending and the value of money. As they mature, you can introduce them to more complex ideas such as budgeting, investing, responsible credit use and philanthropy.”
2. Remember, it’s not just hard cash that counts
Research shows that children learn through observation, play and experimentation. “Think about what a child loves doing and see if there is an opportunity to engage,” says Dr Dhanoa. “For example, if a child loves playing Minecraft, you can use this to help them understand having a budget and how this can be spent, as well as what happens when the budget runs out and how you can earn more ‘virtual’ money. Family board games that involve pretend money can also be a useful tool.”
3. Make budgeting goal-oriented
As children get older, it’s important to increase the degree of responsibility they have. “Providing children with pocket money or an allowance can be a practical way for them to learn how to spend, save and budget,” Dr Dhanoa says. To nurture responsible behaviour, she recommends encouraging spending decisions that are personal and goal-oriented.
“At a time when children might be influenced by what they see on social media, encourage them to make choices based on what they want to prioritise. It’s also okay to acknowledge how disappointing it is to want something, but not be able to have it.”
4. Let mistakes be made
Mistakes are an important part of learning too. “Often it’s the sting of making a poor decision that helps us to make a different decision next time,” says Dr Dhanoa. “Research shows that allowing children and young people to make small, age-appropriate mistakes in safe ways means they are less likely to make bigger mistakes when they are older. For example, if they use their first pay packet from a summer job in a week, help them work out what they might do differently next time.”
Research shows that allowing children and young people to make small, age-appropriate mistakes in safe ways means they are less likely to make bigger mistakes when they are older.
5. Be prepared for difficult conversations
If children have come across media coverage which is sparking questions about money or the economic environment, be honest and answer any questions as best as possible to help them to have a context and age-appropriate understanding of what is happening. “This means you can be more in control of shaping their understanding of anything they are seeing in the media, and how it may or may not relate to them,” says Dr Dhanoa. “Of key importance here is to ensure children do not feel that the family’s financial situation is somehow their fault or their responsibility.”
6. Manage your own emotions
Children are very perceptive,” Dr Dhanoa says. “They’ll pick up on your emotions even if you are saying something entirely different with your words.”
So, first and foremost, evaluate how you’re feeling. If you’re under strain, make sure that you seek out support for yourself before talking to the children in your life about what’s going on.
Dr Dhanoa recommends talking to a supportive friend or family member first. “That should help you to feel less overwhelmed or over-emotional when having a conversation with your child,” she says. “Show your child how to approach financial challenges with a proactive mind-set – so that they learn to approach problems in their own life in the same way.”
7. Avoid transactional relationships
Finally, Dr Dhanao cautions against using money as a tool to control family dynamics. “This can generate transactional relationships in which love, value and significance are only offered in return for certain behaviours.”
She also warns against overpromising or overindulging children’s every want. “This can create a materialistic mindset where money is underappreciated and holds no value. Instead, you can help them to appreciate and value non-materialistic things such as shared experiences and relationships. It can be helpful to have boundaries around money and spending and explain why these are in place, as this helps children to learn about financial decision-making. You don’t love your kids any less just because you sometimes say ‘no’.”