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Teaching children a balanced attitude towards money

The earlier children develop good financial habits, the less likely they are to get into debt when they’re older.

Encouraging a balanced attitude to spending and saving is key to helping them form these habits.

The importance of learning about balance

Having a balanced approach to money is an important part of leading an overall balanced life.

Ideally, we want our children to grow up appreciating the value of money and not spending recklessly, but we also don’t want them to agonise over every penny they spend.

A 2017 study by the University of Michigan found that children as young as five already have emotional reactions to spending and saving which translate into real-life behaviours, showing that it’s never too early to start teaching the basics of money management.

The study, which measured five to 10 year olds’ attitudes to money using the “Spendthrift-Tightwad scale”, found that parents were able to accurately predict how their children were likely to act when asked to choose between spending and saving.

You probably have a good idea of what your own children would do!

Whether they’re already more likely to save or spend, the important thing is striking a balance. We’ve compiled a few ideas to help you gently change your children's attitude towards money if you’re worried they’re too far one way or the other.

What to do if your child spends all their money straightaway

The Michigan University study uses the term “spendthrift” to describe someone who spends money irresponsibly. Hopefully, your child isn’t a “spendthrift” in the true sense of the word, but if you’re worried that they aren’t as thoughtful about spending money as they could be, the trick is to get them involved in the practical side of managing money.

1. Help them set enjoyable savings goals

Teaching your kids the joys of saving for long-term goals can make a big difference to their financial habits later in life.

You can get them started by helping them set a savings goal that they will look forward to achieving.

To encourage them to keep moving towards their target, you could print a picture of what they’re saving for and display it above a savings jar or even set up an incentive scheme where you match whatever they save!

Encouraging them to set a goal and save up for it can also be a great way to prepare your child to handle larger sums when they reach adulthood, for example if they have a child trust fund or junior ISA in their name.

If they manage to stick to their goals, the rush of finally buying the thing they really wanted will teach them a life-long lesson that might stop them spending all their money as soon as they get access to it at 18.

2. Help them write a budget

A good way to help children practice their budgeting skills is to give them a regular monthly or weekly allowance rather than pocket money whenever they need it.

This will teach them to plan ahead as they’ll quickly run out of money if they’re not careful. Simply pointing out that they can choose to spend their money now or spend it in a day or so can help them start to think about their priorities.

3. Get them involved in financial planning

Planning an exciting event for your family is a great way to get your child involved and help them learn about how much money is usually spent on things like holidays and birthday parties.

This will help show your children the value of money without it feeling like a lesson.

You could also involve them in more regular budget planning for your household, such as preparing for the weekly shop or paying bills and other expenses.

4. Give your teenager practice with a credit card

As a teenager, it’s not too early for your child to get access to a credit card.

While they can’t have their own until they turn 18, they can become authorised users on their parents’ credit cards, getting their own card that links to their parent’s account. Letting them access your credit on the condition that they pay back what they use can help them to learn about the importance of only spending what they can afford to pay back. The sooner they learn about how to manage debt, the better they will be able to manage it later on when their spending is likely to be a lot higher.

If your child is still too young or they don’t feel ready for a credit card, you could act like one by lending them money when they need it and charging them interest if they take too long to pay you back. You can always save the interest and pay it back to them in the future.

What to do if your child is scared to spend

The opposite of a “spendthrift”, a “tightwad”, is someone who refuses to spend almost any money at all. While this is likely to mean they’re already well-equipped to avoid debt traps in the future, it can mean that they miss out on fun parts of life because they find spending scary.

If you’re worried your child is too cautious when it comes to spending and might miss out, here are some ways you can help your child develop a more relaxed relationship with their money.

1. Find out why your child is saving their money

It’s possible that your child is saving all their money so they can get something they really want.

Ask them if that’s the case, and what they’re saving up for. Congratulate them if they’re able to save up for their goals!

However, once they reach those goals, it’s important to remind them to not go back on their decision and actually spend that money; getting that reward at the end will help develop a positive relationship with long-term saving.

2. Suggest a “fun budget”

If you feel like your child is so cautious about spending that they might be missing out on having fun, this could be a great option for them.

Encourage them to set aside some money every week or month to be used on a fun activity - anything from a trip to the cinema to their favourite sweets.

Setting a “fun budget” will not only help motivate them to not be too cautious with money, it will also mean they’re able to connect money and having fun.

3. Talk to them about investing

If your child is a bit older and really doesn’t want to spend their money anytime soon, you could talk to them about investing their savings when they reach 18.

By keeping their savings in cash, they might end up losing money in the long run if interest rates don’t keep up with inflation.

The idea of investing their savings in the stock market might sound a bit scary, but they could consider using a stocks and shares ISA so that their money is invested in a fund along with other investors’ money. It’s also worth adding that if they keep their money invested for five years or more, they have a better chance of riding out any dips in the stock market.

A stocks and shares ISA, for example, could be a great way for them to start their investment journey. Stocks and shares ISAs are tax-free investment accounts, meaning they wouldn’t pay tax on any growth. They invest in the stock market, meaning there’s greater potential for growth when compared to cash accounts, but the value of their money could go down as well as up with changes in the stock market so they could get back less money than they put in.

Teach your kids that money isn’t everything

Money might not be the most important thing in life, but what we do with it and how we look after it can have a big impact on our quality of life.

One of the most valuable skills parents can teach their children is how to be responsible with money, whether that’s encouraging them to save for a long-term goal or pushing them to use their money to have fun once in a while. Just like everything in life, developing a healthy relationship with money has a lot to do with balance.

OneFamily Junior ISA

With our stocks and shares Junior ISA you can start investing from just £10 per month up to a maximum of £9,000 each year on behalf of a child. Anyone can pay in, and the child will gain access to the account once they are 18 years old.

Explore Junior ISA

Our Junior ISAs invest in stocks and shares. This means they have good long-term growth potential, but the value of your investments could go down as well as up so your child could end up with less money than you've put in.