Teaching Kids How to Save Money: Everything You Need to Know
Summer holidays are over and the kids are back at school, but there is one thing they likely aren’t learning in the classroom. Can you guess what it is? 👨🏫
If you guessed financial education, you’d be right!
In England, financial education is only included in the national curriculum in secondary schools, as part of citizenship and maths.
According to the Money and Pensions Service, while specific financial education is not a requirement in primary schools, the maths curriculum includes some basic principles about money (such as understanding £ and p, using coins and calculating change).
That’s a large number of kids - including those in primary school - who are missing out on vital education that includes more than simply counting change!
In today’s blog, we’re sharing 5 simple steps from MoneySavingExpert to teach your children about saving money and help give them the saving-money skills they’re missing out on in school.
1) Piggy Banks vs. Real Banks
First and foremost, you'll want to explain to your child the concept of saving, and why it's necessary.
A simple way to explain this is by using the following breakdown: "Put your cash in a piggybank and it sits there. Put it in a real bank and you're lending them your money - so the bank needs to pay you for it!"
Explain that the amount you're paid for keeping this money in one of their savings accounts is called 'interest', and that the higher the interest and longer you keep your savings with them, the more they'll pay you.
2) Choosing a Savings Account
Now that your child has a good understanding of how savings work, you'll want to help them pick a suitable savings account to store their money.
Choose a savings account together and write a list of pros and cons for each one. Make a decision together but have your child monitor the interest rate and let you know if it drops. Most importantly, don't let them be swayed by tempting perks and freebies like cute toys!
3) Safety in Savings
Another good discussion to have with your children in the process of opening up their savings accounts is why a savings account can be safer than keeping the money lying around the house.
Using the piggy bank analogy again, explain that money in the bank is kept safe and earns interest - whereas a piggy bank can be stolen. However, banks also have a slight risk of collapsing - there are always risks involved with any option and it's good to have your child be aware of this.
4) Pocket Money: To Spend Or To Save?
Next, reach an agreement with your children on how much of their pocket money they'll save (and how much is available to spend).
You could also give them an incentive for the more they save: for example, if their pocket money is £5 per week, give them half for spending and half for saving. For every pound they manage to save, tell them you'll give an extra pound to their allowance at the end of the year (if you can manage it, of course!).
5) Be Aware of Taxes
Bonus tip! Most kids (and adults) don't earn enough interest for this, but children's savings can be taxed.
Kids are actually taxed in the same way as adults - if they have no income they can earn up to £18,570 in savings interest tax-free. For more info on this, see this article on the best savings accounts for kids.
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