You might assume that your child or grandchild will be taught all they need to know about money at school.

However, financial education is only included in the national curriculum for secondary schools, so primary-aged pupils may be missing out.

What’s more, figures published by the UK Parliament have revealed that 61% of young adults did not recall receiving any financial education at school. Worryingly, two-fifths of secondary school teachers surveyed did not even know that this was a curriculum requirement.

And yet, research by Nationwide has found that 59% of parents believe that personal finance is a more important life skill than maths and technology – second only to literacy.

So, if you’re keen to ensure that your children and grandchildren are prepared for financial independence, you may wish to teach them these four important money lessons at home.

1. Creating and sticking to a budget – ages 6 and upwards

No matter what level of wealth a person has, budgeting is an essential financial planning skill.

Teaching your children and grandchildren how to plan their spending and live within their means could help them make sensible decisions about their money – both now and in the future.

A good place to start with young children is to explain the difference between “wants” and “needs”. They might want a new toy, but they need food, shelter and clothes.

Giving your child or grandchild the responsibility of dividing their allowance into “needs” and “wants” jars or envelopes is a great way to nurture financial independence. Physically seeing where their money goes could help a young child understand the concept of budgeting.

There are also lots of fun games you could use to develop your child or grandchild’s budgeting skills. For example, Pop to the Shops is a board game for 5- to 9-year-olds in which players use pretend money to buy items from a variety of shops. You could give each person a fixed amount of money and let them decide how to keep their spending within budget.

Alternatively, if you’re budgeting for a birthday party, holiday, or even a weekly shop, let the young people in your family get involved with the financial planning. This could be a fantastic opportunity for them to put their budgeting skills to the test.

2. The power of compounding interest and returns – ages 7 and upwards

Albert Einstein called compounding the “eighth wonder of the world” and Warren Buffett – one of the world’s most respected investors – credits compound interest as the main reason for his success.

As such, it’s well worth teaching the younger generation how compound interest and returns work.

Secondary school-aged children may be able to grasp the concept of “growth on growth” if you explain it using a simple “snowballing effect” metaphor. As the snowball rolls down the hill it grows bigger and bigger. Likewise, your savings and investments could grow over time, thanks to the powerful effect of compounding.

With younger children, you could play the “bank of treat“ game to, which works like this:

  • Give your child or grandchild a handful of their favourite sweets.
  • Tell them that if they don’t eat them today, you’ll give them one more tomorrow. On the other hand, if they eat their sweets today, they won’t get any more treats tomorrow.
  • Keep this going over several days – or hours, depending on the age of the child.

This is a simple yet effective way to show young children the potential benefits of delayed gratification and compound interest.

You could also use this as an opportunity to highlight the benefits of starting to save and invest as early as possible – the longer wealth is invested, the more time it has to grow. Opening a Junior ISA (JISA) on behalf of your child or grandchild and regularly reviewing the balance together, could be a powerful way of demonstrating this.

3. Managing their money online – ages 10 and upwards

According to research by Finder, 87% of UK adults use some form of online or remote banking, and 40% have a digital-only account.

So, learning how to manage money online is a valuable skill you could teach your children and grandchildren as they approach secondary-school age.

For example, you might choose to set up an online current account for them and use this to pay their allowance, birthday money, and so on.

Allowing children to manage their online accounts could be a great way to provide them with real-world experience and encourage financial independence.

However, access to online banking could also expose your child or grandchild to financial scams. Educate them to spot and protect themselves from such risks by providing key safety tips, such as never sharing personal information with strangers online, not clicking on links from unknown senders, and talking to their parents about anything they’re uncertain about.

4. The difference between “good” and “bad” debt – ages 12 and upwards

Taking on debt is sometimes a necessary part of life. Indeed, borrowing money might have helped you achieve important goals, such as buying a home or attending university.

However, not all debt is created equal. Relying heavily on expensive borrowing, such as high-interest credit cards and store cards could lead to unmanageable debt that quickly spirals out of control.

So, explaining the difference between “good” debt and “bad” debt could help your children and grandchildren make informed decisions about borrowing.

Games such as Monopoly and Act Your Wage are lovely resources for teaching children the value of borrowing sensibly and managing debt effectively.

Get in touch

If you’d like to explore different ways to support your children’s or grandchildren’s financial future, please get in touch.

Email hello@intelligentpensions.com or call 0800 077 8807.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.