What Every Child Should Learn About Money

Posted by siteadmin on Thursday 25th of February 2016.

From September 2014, financial education officially became part of the national curriculum. Parents and grandparents can play a major role in ensuring that as children grow up, they learn good money habits that will stand them in good stead for the future.

What should children be taught from an early age?

Financial independence
Many experts recommend opening a bank account for a child so that they can manage their own cash. If they get their pocket money paid into a bank account and know how to run it, the chances are they will learn how to take financial decisions responsibly. With appropriate guidance, they will quickly learn why balancing saving with spending matters in adult life.

Saving even small sums is worthwhile
Junior Individual Savings Accounts (JISAs) show children how their savings can grow, and can be opened for any child under 18. Those children with a Child Trust Fund now have the option of transferring this into a JISA.

They work in a similar way to adult ISAs in that interest on cash is paid tax-free, and there’s no Capital Gains Tax to pay on stocks and shares on encashment, and no further tax to pay on income.

One significant advantage of a JISA is that once it has been opened by the parent or guardian, anyone can make contributions within the child’s annual JISA limit, including grandparents, friends and family. Children gain control of their JISA at age 16, but cannot withdraw the money until they turn 18. At that point, the account is automatically rolled over into an adult ISA, a valuable facility for those who, having acquired the savings habit, want to continue saving or investing tax-efficiently.

Show them how money can grow
Another good lesson to teach children is how compound interest works. If they can see how they can gain interest on their savings and on past interest from their savings too, they will appreciate how valuable regular amounts saved over a lifetime can become. If children grasp this concept, they will have a better understanding of how wealth is created.

Explain how credit cards and loans work
Older children may not realise how credit cards work, or how interest and charges are calculated, but need to be aware before they take out a credit card for the first time. When it comes to borrowing money, they need to know that all loans are not created equal, and that there is a big difference between a payday loan and, say, a car loan. It is also worth explaining to older children the value of having a good credit score and how this can improve their financial chances when the time comes to enter into big financial transactions like taking out their first mortgage.

Children gain control of their JISA at age 16, but cannot withdraw the money until they turn 18.

The value of the investment can go down as well as up and you may not get back as much as you put in.