6 Ways to Educate Your Children

About finances

Where does the responsibility lie to teach your children about financial issues? Financial literacy is still not taught at most schools so it invariably falls to the parents.

Here we have listed 6 practical ways that we hope will help you with your children’s financial education. Some are more applicable to teenagers, others to those in the pre-10 age bracket.

1. Put an allowance in place

This should make them neither a prince nor a pauper amongst their peers. It should be used to help educate them about money rather than merely a means to fulfil a consumer habit.

An allowance needs to be adhered to. There should be no (or minimal) top up treats unless it’s a reflection of an achievement or work they’ve done to earn it. You shouldn’t pay for work that you expect to be done. Some jobs are part of the cost of family life. Good grades should be expected and be viewed as a reflection of their own drive.

2. How you treat money will be passed onto your children

Children learn by copying. One of the most effective ways you can demonstrate proper handling of money to them is by setting a good example.

Talk openly about your finances and include them in your conversations. When you’re purchasing a high priced item or paying a bill, use the opportunity to illustrate good habits such as saving or explain the consequences of not paying a bill on time.

3. The power of savings

The power of the savings process cannot be understated. Not only do your children learn how to save, it will often give the toy or object of their desire more value, instil a sense of achievement and teach a degree of respect. Acquiring the object of desire on a ‘Have now, pay later’ basis is more akin to a credit card culture.

Newton hailed the power of compound interest as the 7th wonder of the world. If you don’t know about it, look it up.

I use interest rates to illustrate the power of saving with my eldest (he’s 7). If he doesn’t spend his £1 a week allowance straight away, I give him 10p interest the following week. Yes that equates to over 500% interest annualised (a rate only achievable in dreams!) but it still teaches him the concept of saving and reinforces good saving habits.

4. Good vs bad debt

Not all debt is bad. Think of mortgages, loans for education and for financing a business. The type of debt that should be avoided is the one that temporarily increases cash flow to purchase depreciating objects or consumer goods – credit cards for example.

As debt will likely form part of your children’s lives at some point, educate them in the differences between good and bad debt and how to deal with it. Bailing them out is likely to reinforce bad behaviours.

5. Assets vs liabilities

Teach your children the difference between the two. Word of warning though, make sure you're confident yourself of the differences first!

On a piece of paper, create a column headed Assets and another headed Liabilities. Then give your children a list of items (house, car, savings account, pension fund, boat, piece of jewellery, etc) and see which category they put each item in. There’s a board game called Cash Flow by Rich Dad Productions which, whilst American based, illustrates this well.

Assets will look to form or generate growth or income. Property doesn’t always fall into this category. If vast proportions of your income are covering the debt and bills, it is taking away from your asset base not building it. Cars can be one of the single biggest drains on your liability list.

6. Control

Give them control of money at an early age. If they walk into a shop and always expect the Bank of Mum and Dad to pay for something they want, it will be a hard trait to break. They need to know the difference between wants and needs. You want your kids to have the best of everything but you need to show them how to achieve that by themselves.

I fondly refer to my children as cost centres. By providing them with the right education, I hope that these cost centres will not be on the books forever and they’ll learn to take care of themselves.

Remember, financial education does not always need to be monetised. We still regularly use star charts for the youngest, educating him with a work ethic and a base to not just know the cost of something but it’s value to him. It’s pointless to know the cost of everything and the value of nothing.

How have you, do you or will you teach your children about finances? We’d love to hear your thoughts and ideas by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or on Twitter.

Article by Max Spurgeon
Director of Legal & Medical Investments
Independent Financial Adviser to Doctors and Dentists
November 2011