According to Cambridge University, your children’s money habits are set by age 7.
It’s hard to believe isn’t it!
Most people don’t start really talking about money with their family, until their teenage years – long after our habits are formed.
If you want to make sure you kids start off on the right track, read on.
Level 1 – Habits come from practice
Knowledge is vastly less important, than good habits.
It’s possible to learn about the benefits of a pension, a stocks and shares ISA, or investing in stocks, on the internet.
But if you’re used to spending 100% of your pay check the week you get it, that’s much harder to unlearn.
So kids need to practice – and practice means pocket money.
It doesn’t matter how big or small it is. Once they can do basic maths (single digit addition and subtraction), they’re at an age to get started.
Giving them some amount of money each week, will help them start making decisions.
Asking children questions about their money, can help frame these.
Things like:
- What are you going to buy with your pocket money?
- Do they have enough now, or do they need to save for a few weeks?
- If they spend all the money on candy tomorrow, will they miss out on something else later?
- And often – how do they feel about not having enough to buy a new toy, because they’ve already spent everything?
Once they’ve mastered this very basic skill (that many adults still struggle with) it’s time to start thinking bigger.
Level 2 – Learning through stories and play
Once of the best ways to help children learn is through stories.
Let’s face it, it’s far more engaging than a lesson on personal finance.
I once bought a book about money for a friend’s toddler, unfortunately it was for ages 7 and up, so it never got read (by the parents or the child).
So you don’t make the same mistake I did, here’s a list of the best books, and resources I’ve found – rated for different age groups.
1. Federal Reserve Education (from nursery all the way to university age)
This fantastic free resource has everything you could think of. It’s ideal for parents and school teachers alike.
There’s a collection of comic books, infographics, posters, presentations, lesson plans, and activities – age rated from nursery age, all the way to university.
Some personal favourites are the comic books, some of which double as colouring books.
For younger children, they also have “lesson plans” containing follow up activities and questions, which can be used alongside related children’s books (links next to the books below).
Available here – https://www.federalreserveeducation.org
2. Save It! & Spend It! by Cinders McLeod (Ages 3-5)
“Sonny gets three whole carrots a week for his allowance and wants to buy everything! But he quickly discovers his money won’t go that far, and he has to make some choices.”
Spend It! also has an accompanying lesson plan and activities from Federal Reserve Education.
3. The Four Money Bears by Mac Gardner (Age 4-7)
“The Four Money Bears teach kids the four basic functions of money. Join Spender Bear, Saver Bear, Investor Bear, and Giver Bear as they teach us ways to use money. When they work together they learn to build a Budget and Teach each other how to better manage their money today and for the future.”
There’s also an online game related to the book aimed at children aged 10-11. Where they can learn to “build a business and beat the competition to become the biggest merchant in the world by learning smart financial habits, behaviours and traits.”
4. Isabel’s Car Wash by Sheila Bair (Age 7-10)
“The Nelly Longhair doll is on sale at Murphy’s Toys for ten dollars. But Isabel has only fifty cents. Isabel decides to start a car wash business; she’s sure she can make money. But at the hardware store she learns that her supplies will cost five dollars! If five of her friends will invest one dollar each, she’ll have enough. Will Isabel be able to pay them back and have enough left over for the Nelly doll?”
Isabel’s Car Wash also has activities and lessons plans available on the Federal Reserve Education site, and a Question & Answer Sheet.
5. Grandpa’s Fortune Fables by Will Rainey (Age 7-12)
“When Grandpa Jack was a young man, he went on an adventure to a faraway island in search of gold. Whilst he was on the island he discovered ‘The Three Rules of Wealth’. These rules helped him to become a very wealthy man.”
As Gail shares her Grandpa’s adventures, your kids will learn:
- The difference between being ‘Rich’ and being ‘Wealthy’
- How to earn money
- The importance of saving their money
- How to grow their money (investing)
- That patience is the superpower of the wealthy
- Why they should avoid gambling, scams and (bad) debt
The author Will Rainey has also developed an online course (for only £12) to help teach your children about money, an award winning blog, and a school program – all available on the Blue Tree Savings website.
Level 3 – Getting some skin in the game
Of course books can only capture children’s attention for so long. Once they’ve got the basics of saving and spending sorted, it might be time to start investing.
One of the best examples of involving children in investing decisions was this:
Give your children a notional pot of money to invest – if you’re in the UK this could be in a Junior ISA, or if elsewhere held in your own investment account.
For small amounts, it could even be notional (you’ll just have to the give them the “growth”). Starting with as little as £15 could work this way.
Buying stocks, means buying companies. So ask your children to make up a checker board with all the companies they can think of.
For comparative purposes, you might want to include a Global Stock Index (buying all of the companies in the world).
Every 6 months, sit down with them and discuss what companies they’d like to buy.
To make it more engaging, give them some coins (or poker chips) representing their money. They get to place these on the checkerboard, so they can visualise their choices.
Ask them questions like:
- Why do you think XYZ will do well?
- What could cause it do poorly?
- Are there any other companies that could do well, if XYZ doesn’t?
- How much of your money should we use to buy XYZ?
They can allocate their money as they wish. The aim isn’t to be a successful investors (although that would be ideal), it’s to learn lessons about diversification, businesses, and compound growth.
Track their progress over time. The best lesson is perhaps that of compound growth, something they need to experience to believe.
It’s probably not going make your child rich, although who knows they could be a stock picking prodigy…
The value is really in the lessons learned, and the discussion.
