Parenting for Life Skills: Raising Money-Smart Children
Raising Money-Smart Children in a Cashless World
In an era where digital payments, contactless transactions, and online shopping are the norm, teaching financial literacy to children has never been more crucial. Unlike previous generations who physically handled money, today’s children see transactions happen with a simple tap or click. This can make money feel abstract, leading to challenges in understanding its true value. By introducing core financial principles like budgeting, saving, and the importance of delayed gratification early on, parents can equip their children with essential life skills that will serve them well into adulthood.
When to Start Talking About Money
Experts recommend introducing financial concepts as early as age three. At this stage, children can start recognising coins and notes, understanding that items cost money, and learning simple transaction concepts. By ages five to seven, they can grasp the importance of saving, making choices about spending, and distinguishing between needs and wants. As they grow older, discussions can include more complex topics like earning money, setting financial goals, and using digital financial tools responsibly. The key is to make financial education age-appropriate and consistent, integrating it naturally into everyday life. Interestingly, when I surveyed 100 parents, only 2 out of 100 reported actively teaching their children about money—both of whom were successful business owners. This highlights a significant gap in financial education and suggests that those with strong financial literacy themselves are more likely to pass these skills on to their children.
Avoiding Negative Money Messages
Try to avoid talking about money negatively, such as saying, "We can't afford this," as children can internalise these messages and develop anxiety or limiting beliefs around money. Instead, reframe discussions by explaining priorities, budgeting, and financial planning in a positive and constructive way. For example, say, "We're saving for something special" or "We choose to spend our money wisely."
The Importance of Financial Literacy in a Cashless Society
Years ago, pocket money came in the form of tangible coins and notes, making it easier for children to grasp the concept of earning and spending. Today, with contactless payments, digital wallets, and in-app purchases, money feels more abstract than ever. This shift makes it even more important to teach children where money comes from, how to manage it, and why it shouldn’t be spent carelessly.
Why Financial Literacy Matters:
Prepares Children for Real-World Financial Decisions – Early financial education leads to better money habits in adulthood, giving children the tools to make responsible choices.
Reduces the Risk of Debt and Financial Struggles – A strong foundation in money management helps children grow into adults who can avoid unnecessary debt and financial crises.
Encourages Independence and Responsibility – Understanding finances fosters independence, ensuring children learn the value of earning and spending wisely.
Builds Confidence in Handling Money – Many adults struggle with financial management due to a lack of education early on. Teaching children financial skills now gives them confidence in making financial decisions in the future.
Budgeting: Teaching Children to Live Within Their Means
Budgeting is a fundamental financial skill that helps children understand the balance between income and expenses. Even in a world dominated by digital transactions, children should learn how to allocate money for different purposes.
How to Teach Budgeting:
Use Tools – Think about how you budget at home. Is this through pen and paper, excel or other spreadsheets or is it in a banking app. Involve your children in this process. For older children apps like GoHenry and Starling Kite allow children to track their spending and set savings goals.
Give Allowance with Guidelines – Instead of handing out money freely, encourage children to divide their allowance into categories like saving, spending, and giving.
Encourage Planning – Teach children to plan purchases instead of spending impulsively. For example, if they want a new toy, they should save a portion of their money each week until they reach their goal.
Saving: Understanding the Power of Patience
Teaching children to save instills the concept of delayed gratification, a skill linked to greater success in adulthood. The famous Stanford Marshmallow Experiment found that children who could delay gratification had better academic outcomes, emotional resilience, and financial stability in later life.
How to Encourage Saving:
Match Their Savings – Offer to match a portion of your child's savings to demonstrate the concept of interest and long-term rewards.
Use Visuals – Piggy banks, savings jars, or digital tracking apps help children see their money growing over time.
Set Goals Together – Whether it’s saving for a toy, a trip, or a charity donation, setting clear goals makes saving more exciting and meaningful.
The Value of Money: Teaching Children That Everything Has a Cost
Many children don’t see the real-world consequences of digital spending. The ease of tapping a card or clicking “buy now” can lead to an unrealistic perception of money. Helping children understand the effort behind earning money is vital.
Strategies to Reinforce Money’s Value:
Earn to Spend – Encourage children to earn money through age-appropriate tasks rather than giving them money freely.
Compare Prices – Show children how different products or services vary in price and why making informed purchasing decisions matters.
Teach the Difference Between Needs and Wants – Help children distinguish between essential purchases and luxury items.
Delayed Gratification: A Counter to Instant Culture
Children today are growing up in a world where everything is available instantly—from streaming services to next-day deliveries. While convenient, this can hinder their ability to wait for rewards and appreciate long-term financial goals.
Ways to Cultivate Delayed Gratification:
Set Saving Challenges – Reward children for waiting a set period before buying something they want.
Encourage Waiting Periods – Before making a purchase, implement a “wait a week” rule to ensure they really want the item.
Model Patience and Financial Discipline – Share examples of how you save for holidays or major purchases, showing that good things take time.
Final Thoughts
Financial literacy is one of the most important life skills we can teach children. In a world where money is increasingly intangible and instant gratification is the norm, equipping children with budgeting skills, saving habits, and an appreciation for delayed gratification will set them up for future success. By making financial education a natural part of parenting, we empower the next generation to be confident, responsible, and financially independent adults.
References
Furnham, A. (2014). The New Psychology of Money. Routledge.
Marsh, H. W., & Martin, A. J. (2011). Academic self-concept and academic achievement: Relations and causal ordering. British Journal of Educational Psychology, 81(1), 59-77.
Mischel, W., Shoda, Y., & Rodriguez, M. L. (1989). Delay of gratification in children. Science, 244(4907), 933-938.
OECD. (2020). Financial literacy and the future of the economy. OECD Publishing.
PISA. (2018). Financial literacy assessment framework. OECD Publishing.
Starling Bank. (2023). How digital banking is shaping children’s financial literacy. Starling Bank Report.
UK Money Advice Service. (2022). Teaching children about money: A guide for parents.
Willis, L. E. (2008). Against financial literacy education. Iowa Law Review, 94(1), 197-285.