Warren Shute: How to raise children who know the value of money
PUBLISHED: 17:30 10 August 2018 | UPDATED: 17:53 10 August 2018
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Financial planner Warren Shute shares his top tips for raising money-smart children - what are yours?
During the course of our lifetime, most of us see more than £1m go through our account – sometimes a lot more.
Yet nobody teaches us how to manage that because we don’t have formal, compulsory financial education.
That means it’s up to parents, not schools, to teach children how to manage their money well, regardless of their own experiences or success with money.
Here are some of the things I do with my own kids to help them become money-smart.
• Pocket the difference
Pocket money is the best way to get children in the right habits when it comes to managing money.
I have two great children and a pocket money system that helps them learn about money, which I outline in some detail in my book The Money Plan.
Firstly, their pocket money is linked to chores around the house such as putting the bins out, emptying the dishwasher and so on.
I think they need to understand that for most of us, money is earned, and effort is required to have it.
Secondly, their pocket money is set by how old they are: £2 for each year of their age, so they can see some progression.
And thirdly, to help them understand the value of money, as a general rule we buy their needs (school uniform, general clothing, meals etc), but we expect them to buy their wants: my daughter Bella loves making slime (!), so she orders things via Amazon; and my son Olly loves his Xbox, so he pays for his online subscription and games with his pocket money.
When I started this, I got into debt with my children as I don’t often have cash – not the message I was planning on giving!
I quickly changed this by automating payments directly on to their Osper Card each month. This is like a debit card for children, and is another way to help kids learn lessons they’ll use throughout their lives as adults.
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• Know limits, not no limits
My wife and I have a policing mechanism in place, which is that if our kids want to buy something that costs more than their age – so over £12 for my son at present – they have to check with their parents. That stops them buying rubbish unnecessarily.
They’re learning a skill, so we give them some free rein but at the same time we’re encouraging them to think about what they’re spending their money on.
We try to have them ask the same questions that are my mantra when it comes to adults taking control of their expenditure: do you really want it? Do you really need it? Can you buy it cheaper elsewhere?
Sometimes we’ll ask them to do a 24-hour check for larger purchases: “Sleep on it, and see how you feel tomorrow.”
And we’ll also encourage them to look around to find a better deal for the same item.
We’re trying to teach them the skills to manage their money properly, so that when they leave home and have to do these things themselves, they’re in a position to do so.
When my son gets a phone, we’ll increase his pocket money but he will be responsible for paying his phone bill.
He’ll have to make sure he’s managing his money to cover the phone as well as his other wants.
Slowly but surely, without it being boring, we’re teaching them money management. I recommend this to all the people I help too.
• Understanding value
One of the key lessons here is to help your children understand the true value of money.
As adults, we can sometimes struggle to appreciate that ourselves, because it was never taught to us. Children are no different.
Here are four tips:
1. Whether you follow the pocket money system outlined above or something completely different, find a system which works, share it with them, keep it simple, and stick with it.
It really helps children understand what things cost and how ‘expensive’ in real terms some things are.
2. Personally, I don’t believe in paying for school grades, I think those are better left for encouraging self-discipline. But hey, what do I know, I’m on this journey of parenthood myself.
3. It can be interesting helping children buy gifts for their parents, siblings and/or friends, as they soon realise the cost of things.
Talk to them about money and explain how long you personally need to work to pay for these things. It’s also good for children to learn how much the weekly grocery shop costs.
4. Children, like adults, learn by osmosis. If we do the best we can as parents, they will pick up the things we share with them.
Warren Shute was named the UK’s Financial Professional of the Year (2017) and is the author of The Money Plan. He writes at www.warrenshute.com