Educating your children about finance should start at a young age for it to be most effective. By doing this you’re helping them to understand the value of money early on which could help them to manage their finances better and potentially even help to minimise the risk of financial debt for them in later life.
Some parents find that giving their children a small amount of regular pocket money helps with the process as it encourages them to save for items they want to buy. This way, they’re not relying on you to supply everything for them at the click of a finger – they’ll learn the concept of saving and waiting before buying something.
The next natural step would be to open up a personal account for your child with a bank or building society. Many have dedicated children’s accounts, some of which can be opened from the age of seven. It’s a good idea to shop around as they have varying interest rates, abilities to set up standing orders and cash card, debit card or cheque book offerings. If the account comes with a debit card, explain that this means they can only spend what’s in their account.
If you want to teach your child about saving money, you’re better off opening a savings account as they can earn up to around 6% this way. Agree with them how much they’ll save and try to explain how interest works so that they are encouraged to save money in an account rather than keeping it in a piggy bank. With a bank or building society account, the more they put in the more they’ll get out!
University is likely to be the first time that your child has complete control over their finances so it’s important you teach them about budgeting. Help them to calculate their earnings (through their student loan, paid work and any financial assistance you may offer) against their outgoings such as rent, utilities, transport, books or equipment for their course and so on. You can then help them to work out how much they have left over that can be spent on ‘luxury’ items or put towards savings. To get you started, you can download a student budget sheet here.
It’s probably a good idea to open a student bank account in which to receive their student loan instalments. They normally come with interest-free overdrafts which, again, you should explain is for short-term borrowing as it will need to be paid back. You may also wish to apply for a credit card to be used in emergencies, so look around on a comparison site like comparethemarket.com to find the best deals. You should explain how they should use a credit card sensibly – so cover things such as what APR is and when they need to make repayments.
Show them through using internet banking so that they can quickly and easily manage their finances. They’ll be able to set up, amend and cancel standing orders and direct debits to pay their bills as well as make transfers and check their balance regularly so that they know they’re on track.
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