Snapshot

Nine practical ways to talk to children about money


Some parents dread talking to their children about money. Others simply struggle to know how or at what age to begin.

This is understandable: money is both a complex and emotive topic. But beginning the conversation early on helps children to form the foundations for a healthy relationship with money and enables them to learn important financial principles that will help them to successfully steward future wealth.

Having open conversations from a child’s early years creates an opportunity for parents to share their values and encourages children to formulate their own.

A common misconception is that talking to children about money involves disclosing amounts or elements of the family's financial life and position

In this article, we offer several practical and age-appropriate ideas for parents and grandparents to consider. But first, here are some overarching principles that we would recommend to anyone who is talking to their children about wealth.

What are your views on wealth?

To effectively talk to children about money, it’s important to understand your own values and wishes. Spend some time thinking about these key questions:

•  What does your wealth mean to you?

•  What legacy do you want to pass on to your children?

•  What are your views on saving, investing, borrowing and giving?

•  What do you wish you had known or understood about money at a young age?

You could write these thoughts down in a letter for your children to keep, or simply use them to inform conversations with your children.

It's not all about numbers

A common misconception is that talking to children about money involves disclosing amounts or elements of the family's financial life and position that may not be appropriate to share with children or young adults.

Instead, the conversation should center around communicating values and principles for managing money effectively. The goal is to share with them what's important to you about money, and to equip them with the skills and confidence to manage their own wealth effectively.

Identify any pitfalls that you wish for your child to avoid. This could be anything from entitlement to lack of confidence. Think carefully about this and find ways to discuss your views with your child. A good way of phrasing this might be "our family cares about ‘X’, and that’s why we do ‘Y’".

The goal is to engage your child, help them to feel confident about money and to encourage them to formulate their own views and goals

It's a two-way conversation

The goal is to engage your child, help them to feel confident about money and to encourage them to formulate their own views and goals. Invite your child to contribute to the conversation and encourage questions. When you're talking to children about money, ask them what topics they would like to know more about. Set the scene by framing money as something to be open and curious about.

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Ages 3-6

1. The Jam Jar Exercise. Label three jam jars "Spend", "Save" and "Give". Give your child a regular amount of pocket money and split the money between the three jars. As they get older, you can give them more autonomy over how to allocate to each jar.

•  For the spend jar, let your children feel empowered to make their own decisions about how to spend their money. Once they have spent all their money, resist the temptation to give them more until they have replenished their jar.

•  The save jar is often a good place to keep tooth fairy money or smaller monetary gifts from friends or family. As your child gets older, start to introduce the concept of interest rates by making small additions to the pot. You can even incentivise your children to save more by offering to match their savings.

•  For the give jar, have fun choosing a charity or beneficiary with them and try to build a memorable experience around their gift, such as volunteering or visiting the charity to see the impact of the gift. This jar often sparks joy and can be very memorable for children.

2. Going Shopping. From a young age, you can start to involve children in decisions in the shops. One example is asking them to choose between a branded or white label good. Show them the price difference and ask them which they would choose. As your child gets a little older, give them money to allocate to a category, such as fruit. This gives your child autonomy over a small financial decision for your family. Many children take great pride in contributing this way.

Ages 7-10

3. Working for wants. Introducing the concept of “needs” versus “wants” can be a powerful way of helping children to decide how to spend their money. You can introduce this concept by asking your child to write down their “needs” and their “wants” on a back-to-school shopping list, and then discussing with them how to allocate your budget for the trip. Working for “wants” is a great way of setting goals with your children that they can feel pride in working towards and achieving. Ask your child to draw a picture or write down their want, and give them the opportunity to do a few specific jobs that you will pay them for to reach their goal. Celebrate with them when they get there!

4. The family birthday party. Give your child a budget for a family event such as a birthday dinner. They should have complete autonomy to decide how to allocate the budget, including designing a menu, buying ingredients and choosing whether to have decorations, cake and so on. This is a fun way for children to allocate a budget and make spending decisions on behalf of the family.

Ages 10-15

5. Make a trip to the bank. We live in an increasingly digital world, but a trip to a bank can be a memorable experience for children and help them to understand the concept of choosing somewhere to store and manage money. Consider opening a minor or a joint account so that you have full visibility on the account, and choose a bank with an intuitive and easy-to-use app that you can look at with your child. Help your child to pay in any gifts and pocket money and they can watch the balance grow. Review the monthly statement with them and show them the interest rate and payments.

6. Stock picking competition. Introduce the idea of buying a share of a company by asking each family member to select a company that they know and see which performs best over a period of months. It might be the company that makes a favorite food, toy, or something they see in their everyday lives. Teach your child how to look up the share price — the stocks app on an iPad is often a good place to start — and ask them to track the price over time. You do not need to buy stock but can instead offer to pay them any dividends and gains that have been made after a given period of time, or simply award a prize to the winning stock picker.

Ages 15-21

7. Building a budget. Help your child to build a budget for school or university. Show your child how to anticipate their income or allowance, plan for spending needs and separate fixed and discretionary costs. Changing their allowance to being more infrequent will allow them to put the budget into practice themselves. Encourage them to allocate some money to an emergency fund in case they need it at short notice.

8. Charitable vehicles. Involving a young adult in the family's charitable giving is an excellent way for them to learn about investments and family values without having to share the whole family’s financial picture. If there is a charitable structure or account within the family, ask your child to be involved in deciding which charities to give to and how much. Invite them to attend investment meetings to see first-hand how the assets are being managed or go through investment reports so they can gain an understanding of how the funds are being managed.

9. Investing a portfolio. Give your child some money so that they can build their own portfolio. You may choose to give your child several hundred pounds for them to allocate, or give them investment control of their JISA at age 16 if you have set one up for them. Set ground rules for the portfolio, such as when they can access capital and income.

If you would like an educational session for your child, introducing the basic concepts of investing, we would be delighted to arrange this for you. Please speak to your Cazenove Capital representative for more details.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.