The world of finance is becoming increasingly complex.

As financial institutions develop new ways to save, new types of investments, and even new forms of digital currency, possessing the core skills required to set a budget, build a solid financial plan, and identify potentially risky investments will remain critically important.

Because these skills are so essential, learning them early can be a huge advantage. Although almost every type of savings account becomes available when a person turns eighteen, lacking the basic knowledge or skills to utilise these tools effectively could lead to simple mistakes that could mean they miss out.

In this article, we will be exploring some helpful tips and tricks to help get kids excited about saving money and build a foundation for their financial future.

Top Tips For Teaching Kids About Money

Start Young

It’s hard to get kids excited about saving.

Like most people, children are almost always more excited about spending their money than putting it away for a rainy day.

By establishing the basics of budgeting and spending money, you can help your child learn good financial habits from an early age.

For very young children, imaginative playtime, such as playing a shopkeeper, can be an easy and fun way to teach the association between money and everyday life, like paying for groceries or household essentials. For slightly older children, having them work around the house in return for pocket money could be a good way to teach them to associate the amount of work they do with the money they can save.

Whatever method you choose, teaching kids the value of money is an essential first step to financial literacy.

Find Ways To Ground Money In Reality

Finance and money management can be complex topics to discuss, especially when we delve into issues like interest or credit.

Instead of talking about financial topics directly, try to find opportunities to ground your children’s understanding in real-life examples and situations. For instance, if your kids want something expensive, like a new games console, you could start a piggy bank (or even a child-friendly bank account) and offer to match their contributions up to the value of the item.

By taking this approach, you can show your children how to save for something they want while also teaching them about employer contribution pensions, which match employee contributions up to a specific value.

Since pensions are becoming increasingly important, this could be an excellent opportunity to teach your children the importance of opting into pension schemes, as well as teaching them how to be discerning when applying for jobs later in life.

Looking for these types of opportunities can help teach your children how to take advantage of financial rules and plans, and start utilising them for their benefit. 

Practice Openness and Honesty

Speaking plainly about financial issues isn’t something that comes naturally to many people. When it comes to money, we may be inclined to be secretive and avoid direct questions, especially if we are struggling financially.

However, failure can often be the best teacher. Opening up to your children about how financial issues have impacted you, your family, and your friends in the past can serve multiple purposes.

Primarily, it can help them avoid the same mistakes you may have made yourself, such as taking out high-interest credit cards as soon as you turn 18, and help avoid pitfalls that could harm them later on. In addition, encouraging healthy, open dialogue around money will remove communication barriers if they ever need to ask for help.

You can also use this method to discuss the benefits of saving. Explain your current financial plans to your children and how you are saving, or let them follow along if you are saving toward an expense, such as a holiday.

In any case, it’s always important to frame any financial conversations without blame or shame. It’s easy for young people to make mistakes with money, and sometimes financial issues can occur without anyone being at fault.

Practising openness and honesty with your children about money will not only give them a realistic understanding of how to save money but also provide them with the tools to discuss any concerns, worries, or plans they may be developing.

Distinguish Between Wants and Needs

Many adults struggle to be honest with themselves about when they want something versus when they truly need it. A new television, a games console, or tickets for a music festival may feel like a need in the moment, but in reality, these things are often simple wants.

On the other hand, long-term financial security is something that everyone needs to invest in if they want to maintain a high quality of life well into adulthood.

Learning to distinguish between wants and needs can be an excellent opportunity to teach children how to prioritise, but also show them when it’s appropriate to indulge. If you help your children create a financial plan and they find themselves with a surplus, show them that it’s okay to spend this money on something they want.

Similarly, if they are on track with their savings goals and encounter an unexpected windfall, like a gift from a family member, show them how they can either add this to their savings or help them choose how to spend it.

Although it’s important to teach your kids the difference between a want and a need, it’s also important to remember that buying something just because you want it can be okay, as long as there is room for it in their budget.

Help Them Create A Budget

The ability to budget may be the single most important financial skill that a person can learn, regardless of their age.

Learning to be honest about how much money they have coming in and going out, and being realistic about how much they can save each month, are key skills in financial literacy. This can help your children avoid running a deficit that relies on credit cards or high-interest overdrafts.

Potentially even more important is the ability to update budgets as your circumstances change. Whether your child goes to university or gets a job after school, they will need to know how to update their budget to match their expected earnings and expenses. By helping them establish this habit early on, you can set them on a path for financial success from an early age.

Find The Perfect Way To Help Your Children Learn About Money

Teaching kids about money can be a difficult task, and one that can seem thankless at times.

At Sheffield Mutual, we offer a range of products that can help your children learn financial skills, including our Children’s Tax Exempt Savings Plan, our Investment Junior ISA and our Children’s Regular Savings Plan.

If you have any questions about these products or are interested in becoming a member of Sheffield Mutual, please don't hesitate to contact our team, who will be happy to provide you with any information you need.

This blog provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.