Article How to help your child manage their money

In the UK, money is a taboo subject and can often be an awkward conversation. However, normalising talking about money is easy and is especially important for your children, to help educate and prepare them for when they eventually flee the nest.

As your child will learn the basics of money at primary school (counting and handling change for example) – we’ll focus on the conversations to consider having with pre-teens, teens and young adults. They’ll require additional financial education and guidance on money management, as they start to enter the real world.

Find out more about:

• Pre-teens – teaching them the value of savings.
• Teens – helping them understand the budgeting basics.
• Young adults – encouraging them to start thinking about their future.

Pre-teens – teach them the value of savings

After learning the basics of money at school, your pre-teens are probably reaching an age where they’ll want to start putting their pocket money towards buying their own belongings such as clothes, games or technology. This is where education and learning about the value of saving comes into play. Saving money will help your child understand goal setting and how to plan to achieve that goal, while developing a sense of independence and security.

Saving requires discipline and focus. But instilling this behaviour early on could set them up in good stead as they take forward these positive saving habits into later life. Here are some things to think about.

1. Create an opportunity for them to earn pocket money

If you can, consider giving your child pocket money after doing some chores. This should provide them with some momentum to earn money and understand the value of it, as they can use their hard-earned cash to purchase something they want.  

2. Focus on the short term

Ask your child what they would like to buy – is it a toy, a camera or a game. You should then both sit down and create a plan to identify how long they’ll need to save up to afford this product. It will help them understand that we can’t always buy things immediately and it can take time to afford what we want.

3. Create different scenarios

Set up various scenarios to help them think about the value of saving, rather than just focusing on materialistic objects. Show them how much money they would need for a day out with their friends for example, if they went to the zoo or the cinema.

Or ask your child to sit down with you and review the shopping list together – get them to point out where they think you could maybe save money. You could maybe even buy a more expensive branded product one week and then a cheaper alternative the following week. You can then both decide which one was better and if it’s value for money. It’s also a great idea to take them to the supermarket, so they can see and understand how discounts can help you save money.

4. Encourage the use of handling coins and notes

We’re becoming a cashless society, but it’s a good idea to use real money (coins and notes) to help them grasp a good understanding of handling cash. This can also be a good way of encouraging mental arithmetic – to work out how much money they require to pay for the item, and how much change they should receive.

To put this into practice, when you next go out shopping, give your child the money to handover to the cashier and count out the change they receive back. If you decide to use your credit or debit card, explain to them how bank transactions work. There’s also the traditional method of setting up a piggy bank to allow your child to see their savings grow.

5. Introduce to them to online budgeting apps

After using cash and notes to grasp an understanding of how money works, you might then choose to set up an online budgeting app suitable for children and young adults. There are different apps available offering different ways for you both to manage and monitor their money. Read the section 'Lessons about online banking and money apps to help keep them safe' for more information.

Teens – teach them the budgeting basics

Teenagers are at an age where they can open their first savings account. It’s a crucial time to support them with budgeting and money management, as they start looking for more responsibility and ownership of their money.

There are saving accounts available for 11-15 year-olds and parents will have access to the account to make sure it’s safe. You should speak to a financial adviser or the bank provider before you make any decisions. For those teens that are slightly older, they’re likely to start their first job whether that’s part-time or full-time. They might be looking to save for more expensive items such as a car, university or maybe even their first property.

It can be tricky talking to teenagers about money as they want more independence but here are some hints and tips to consider:

1. You’re their role model – show them how you handle your own money

It’s good to be open and transparent when you’re talking to your child about your finances, as it could help them understand your decisions and values around money. Show your teens how you spend your money, how you budget and tell them about your financial goals. For example, share why you couldn’t afford something, or tell them why you’re cutting back to put some savings aside for a holiday. You can even consider asking them what they would do differently. Your children do look up to you and it can be frustrating when you say no to something or hide things without any explanation or rationale.

2.Understand wants vs needs

As they start their first job and earn more money – budgeting is more important than ever. Follow these steps to help you create a budgeting plan with your child:

• Identify wants vs needs – this is important to distinguish where to spend and save cash. Talk to them about avoiding peer pressure, as they don’t have to follow what all their friends are buying.
• Set goals – after identifying their wants vs needs, prioritise what goals should be achieved first and if there’s a financial target they’re working towards.
• Show them how to divide their cash between saving, spending and perhaps giving to charity.
• Track expenses – it’s now time to track their spending and saving habits. Can any improvements be made? Remember there are discount codes and coupons available – show them how they can be savvy with their money.
• Consider a buffer – think about developing a flexible budget that includes a line item for savings and another for extra cash. This will help them afford the occasional purchases which really brings joy. After all, it’s about getting the balance right of having fun and spending wisely.

3. Lessons about online banking and money apps to help keep them safe

We’re becoming a cashless society so when you open their first bank account with them, opting for a debit card could be an option. As it can be easy to lose track of your spending when you have a debit card – especially with Apple and Google pay – share your valuable life lessons and experience with your teenager as they start the next step in their money management journey.

Tips to help you identify scams

One lesson you should teach your child is about being safe online, especially with their bank account as scamming activity is particularly rife. Here are 4 steps to help you identify if it could be scam:

1. Trust your instincts – be wary of unsolicited phone calls, emails and letters as well as cold callers to your home. This could be part of a scam.

2. Take your time – you should never feel rushed into making a decision. Read any documents you receive thoroughly and always get advice from a regulated financial adviser.

3. Do your research – if an offer seems too good to be true, it probably is. Research the named individual and/or company to check they’re legitimate before taking the next step.

4. Never give out personal information – scammers will use this to access your accounts. This includes, but no limited to, not giving out personal details, taking pictures of bank cards and sharing PIN or bank information.

Your child should also take care of what they share on social media – scammers usually use these platforms to gather information about individuals to scam them, access their account or for identity theft. The National Cyber Security centre shares guidance on how to use social media safely. 

Make sure to visit your bank and/or financial providers website for their own guidance to help keep you and your child’s bank account safe. Make it clear to your child that they should come to you before making any decisions. You can also visit our Online security and fraud protection hub for tips on how to be scam savvy.

4. Start to think about the longer term

Even though retirement is a long way off, it’s never too early to start saving towards retirement. Teenagers are unlikely to start saving for their retirement at this age, but it’s good to put it on their radar. You can watch our video on How does a pension work? to educate them on the pension basics.  

Young adults – help them start thinking about their future

They’ve now left school and might be starting University or their first full-time job. As a young adult, your child will now be working towards becoming financially independent, so they can move out and start the next chapter of their life.

It’s not an easy transition, especially as the meaning and value of money changes – it’s no longer spending money on things they want and like. It’s now about having money to survive and pay for everyday expenses – to pay bills, rent, buy a house, own a car, and pay for food shopping. This is where teaching your child about the value of savings, budgeting and money management early on in their life, can help them be savvier and more confident when handling their finances.

Creating a long-term financial plan

A recurring theme throughout this article is that it’s never too early to make a start on anything and this applies to creating a financial plan for life. It’s something to seriously consider as it can provide direction while taking into account life’s twists and turns. Your child won’t be able to start doing all these things just now but if you educate them, it could help them be proactive with their finances rather than reactive.

Here are some hints and tips from our financial wellbeing index about what to consider when creating a financial plan:

1. Think carefully about debt/borrowing

Ideally, we all want to avoid getting into debt or borrowing money but most of us do have some form of debt – whether that’s credit cards, mortgage or even a student loan. But having some debt isn’t necessarily bad.

It’s good to talk to your child about debt to help them as much as possible. Educate them about how banks and financial providers determine if you’re eligible for a loan. Explain how borrowing usually means paying back with interest, and how they can manage repayments. It’s a good idea to ask them what they think debt means, how they can avoid borrowing money and what would happen if they couldn’t repay it. You should also make it clear that it’s ok to ask for help if they’re unsure of anything.

2. Build up emergency savings

Individuals of any age should consider building up an emergency fund to make sure they have a safety net to fall back on. Experts recommending aiming to save at least 3 months’ worth of income for this purpose.¹ By putting something away each month, it can all add up.

3. Consider contributing to their pension

Your child’s financial plan should include pension contributions, stating an ideal amount to pay in at different stages of their life, whilst working towards their ideal retirement income target. For example, considering how much they would like to have when they retire and how much do they need to save throughout their life to achieve this.

It’s important to give their pension the time and attention it needs, for their pension pot to potentially accumulate over time. Remember, the value of an investment can fall as well as rise and isn’t guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.

To help them envision their retirement your child can:

• Imagine their best life – where do they want to get to?
• Think about what brings them joy and purpose – now and in the future?
• Define their money goals – to buy a house, pay off your credit cards, or have enough to retire early?
• Consider what do they want to tackle and in what order?

Use our best life tool on our website to get started. You can also read our article about how to create a retirement plan on our money tips hub, which provides further insight into some other questions to consider when you’re thinking about and planning for retirement.

Next steps

Helping your child learn the basics of banking, savings and even teaching them about the importance of saving for retirement, could set them up in good stead. It’s about finding the best approach for you and for them. Instead of you talking at them, make it a two-way process by asking questions to encourage them to think about the situation and share possible solutions with you. And remember, keep it fun and engaging while instilling these behaviours.

There are also lots of good tools and resources out there. Talk Money Week is particularly useful as it has resources about how to talk to your children, partner, friends or parents/grandparents about money.

If you're in any doubt, we recommend you speak to a financial adviser. You can find a financial adviser through MoneyHelper. A financial adviser is likely to charge for their service and should provide details of their charges upfront.