More kids are saving their pocket money, which is great news. According to NatWest Rooster Money’s latest pocket money index, kids are saving over a third of their cash (34%) — even higher than adults, who are squirrelling away 29% of their money. The figure for adults used to be a lot lower at around 5%, but people are spending less on going out and job insecurity and uncertainty about the future, has encouraged people to save more.
If you have kids, now is the perfect time to help them get good financial habits – after all, good money management always starts at home. Here’s how to help your children become financially savvy.
Give pocket money regularly
If you want your child to save regularly, then give them pocket money regularly. Be consistent so that they can plan and save for their goals, but also learn to budget for things like toiletries, as they get older. Agree on a set amount per week and stick to it. This way, if they want to save for something, they can work out how long it will take them.
Let them make mistakes
This isn’t easy to do, we admit, but if your child wants to blow all their cash on unnecessary treats, then let them. They will soon realise they don’t have enough money to buy the things they REALLY want or need and that it was a mistake not to save some of the money when they had it.
Open them a bank account
When we say open a bank account, we don’t mean going to the High Street – those days are almost over. With new challenger banks on the market, banking is a lot more fun and accessible, using just an app. GoHenry (read our review) is great for kids to learn about pocket money and good money habits. It has recently announced accounts for teens too. App-only challenger banks like Starling or Monzo will appeal to your teens – and encourage users to save with visual goals and also make banking easy. These bank accounts can also help them learn how to budget with various in-built tools.
If they are old enough to have a cash card, you can pay their pocket money straight into a bank account. In the cashless world, we live in, we can often be caught short of cash. Once my kids hit their teens, I killed two birds with one stone and paid their allowances by standing order on a monthly basis. That taught them how to manage a bank account, how to budget and what it’s like not to have money until payday!
Get them a junior ISA
Don’t forget saving for the long term is also important. So if they are still young, then open a junior ISA for them and agree to put a set amount in each month.
If they’re young, then consider opening an investment junior ISA – you should save for at least five years, ideally 10, when investing. If your child is 13 and over, then an investment junior ISA might not be for them, but you can put money into a cash junior ISA instead. Keep an eye on interest rates, and in fact, you may find better rates in fixed-term savings accounts. These accounts will give you a set interest rate if you do not touch your savings for a period of anything between one to five years.
If your child is over 16, then they can have an adult ISA – again, if you don’t want to touch the cash for at least the next five years, then put your money to work in an investment ISA rather than just cash.
Saving tiers
Take time to teach children about the difference between short-term, medium-term and long-term savings:
- Short-term – this might include emergency cash or money you need from one week to another.
- Medium-term – money you’re putting away for the next few years. It might be for a trip of a lifetime, cash you intend to access for university or to get married or for a house deposit.
- Long-term – this could include things like a retirement fund. Even as children, they need to learn that this element of saving is important.
And finally, lead by example!
Remember, children will pick up your good habits as well as bad ones. So, when you’re out shopping ask them questions such as ‘do you think this is too expensive?’ And don’t impulse buy in front of them — teaching them the benefits of delayed gratification is vital.
Teaching them the concept of digital money is also important, since we now use contactless payments for most of our day-to-day purchases and not notes and coins. It’s a harder concept for them to understand but stick to it.
Amusingly, when my (now PhD) son was little, he would insist on a £5 note rather than 5 pound coins… he saw paper money as having intrinsically more value. kids are weird like that so go with the flow.
Published in may 2018, updated in November 2020.
