It can sometimes be difficult for children to grasp that there’s not an endless supply of cash that can be plucked from a magic money tree every time they want the latest toy or trainers.

That's why it's important to teach kids about money, how it works and how to to be smart with it.

Teaching your children or grandchildren to become financially aware is key to enabling them to build confidence in dealing with financial matters as they grow up – and achieve financial stability throughout life.  

And, when it comes to giving children responsibility for spending and saving, it’s vital to start early.

According to research by Cambridge University, adult money habits are set by the age of seven years old. What’s more, according to the Royal Economic Society, children who are encouraged to save are significantly more likely to carry on saving as adults.  

Studies show that school-age children are keen to understand more about money and its real-world applications.

The good news is that financial education is now taught as part of the secondary national curriculum in England, and the national primary and secondary curriculum in Wales, Scotland and Northern Ireland.  

However, as with most things, their experiences at home will have the biggest influence.

All you need is a few tricks up your sleeve to engage impressionable young minds and you’ll find the children in your life will soon figure out how to be smart with money all by themselves. 

Here's some of our top tips for teaching your kids about money... 

In this article:

Teaching pre-schoolers and reception years about money

Teaching primary school children about money

Teaching teenagers and young adults about money

Banking for beginners

Pre-schoolers and reception years 

Research shows that by the time they’re four to five years old, children understand that they need to pay for merchandise, but may not understand that coins have different values, so visual games and tangible activities work best to teach them, such as: 

• Create a colouring-in savings chart. For example, draw round different coins on a sheet of card and task your child with colouring them in and learning what each one is (a 10p, 50p, £2-coin, etc.) as they start saving their cash, leaving others uncoloured to show how much more they need to save to achieve a particular savings goal, such as being able to go to the shops to buy a toy. 

• Start a money jar collection. Rather than a piggy bank, using a clear jar will enable young children to see their money growing as they add coins in and feel excited about building their own savings stash. 

• Show them how money works. Paying by card is quick and convenient but doesn’t show young children how money works. Counting out the cash to pay for the object of their desire will clearly illustrate that all those money jar coins are now gone, and they’ll have to start saving again before they can buy something else. A simple but effective way of demonstrating one of life’s key financial lessons.

Primary school children 

From the age of seven or eight, children begin to understand the difference between ‘wants’ and ‘needs’, so this is an ideal time to start talking to them about how they can achieve their own ‘wants’ through earning and saving.

From the ages of nine to 12, children want to demonstrate their independence, so you can shift the focus on taking responsibility for their own spending and saving choices. 

• Introduce ‘earn and learn’. Research shows that children who are just given pocket money are much less likely to save – so it’s better for them to learn that money isn’t free but has to be earned. Discuss with your child ways that they can earn by agreeing rates of pay for certain chores, such as making their bed, tidying their room, feeding pets or helping sort out the recycling.  

• Let them weigh up the options. Help your child to see that spending on one thing means they won’t have money for something else. For example, by saying ‘if you buy this PlayStation game then you won’t have enough money to get those football boots you wanted for next week’s match.’ This will help your child consider the importance of weighing up decisions and understanding the possible outcomes. 

• Illustrate the impact of impulse buys. It’s easy to be swayed by wanting something in the moment, but learning restraint is key to being financially savvy. There might be deal on a monster digger truck toy in the supermarket, but it pays to remind your child that they’ve been saving for ages for that outdoor science lab kit and nearly have enough to buy it. Encourage them to wait at least a day before they purchase anything over £20 so they have time to think about the money decisions they make.

Teenagers and young adults 

This is the age when money really starts to matter as the things that teens typically want cost more – whether that’s learning to drive, buying their first car, or going on a holiday with their friends.

While they may not seem to appreciate your advice, there are some key messages and teachings worth persevering with. 

• Encourage budgeting. No matter how small their income, now is the time to help your teen get into the habit of making a plan for their money while they’re still at home and cushioned from real-life living costs. 

• Issue a credit warning. Once your child turns 18, they’ll be targeted by credit card and loan companies. Explain that buying things this way will cost them a whole lot more – saving £1,000 may be hard but borrowing that amount on a credit card at an APR of 18.9% may cost an extra £508 in interest – and potentially take years to pay off. 

• Explain the magic of compound interest. Compound interest – where interest is calculated using the interest on the principal amount plus the interest already accumulated up to that point – allows sums of money to grow exponentially over time, like a rolling snowball. A sum of £5,000, invested at an interest rate of 5%, could turn into just shy of £17,000 over 25 years. If you haven’t managed to get their attention before, it’s likely you will now – and you could soon have a budding investor in the family.

Banking for beginners 

Rather than just relying on cash, getting your child a bank card can teach them about how money and banking works in the real world.

There are two options – either a prepaid card, which usually has a membership fee and is available for children from aged six, or a debit card linked to a children’s bank account, available for children aged 11 and over. Both work in a similar way and won't let your child spend any more than the balance on the card. 

Popular with kids who want their very own personalised payment card, is GoHenry, which enables them to spend in shops, online and to withdraw cash.

Parents simply top up the child’s allowance online and set weekly spending limits. Top picks from Moneysavingexpert.com include HyperJar, which is managed via an app and can’t be used at ATMs, pocket money card and app Nimbl, which allows you to set daily, weekly or monthly spending limits, and Rooster Money, which lets you track those chores you agreed to pay for and splits pocket money between spending and saving pots. 

Children’s bank accounts don’t have overdraft facilities, so this can be a safe way to learn the basics of financial management before moving on to an adult account.

The best accounts for children rated by Which? include Starling Bank's Kite (ages 6-16), interest-earning Nationwide Building Society's Flex One (ages 11-17) and Monzo's 16 Plus Current Account. 

It's never too early to learn the value of financial planning and, as the years go by and life gets more complex, having an expert financial adviser by your side can bring significant benefits.