Children have already formed their financial habits by the age of seven. A Cambridge University study has found that by this point, they have framed 'core behaviours' such as the ability to plan ahead, which will affect their financial decisions forever. The majority of these habits they will have learned from their parents.
So how can you ensure you are passing on good money habits to your children - at any age?
This generation of children will need financial know-how more than ever. If they go through university they may start their adult life with hefty loans, easy access to credit, expensive housing, and relatively low-paid jobs.
If they are taught sound money management they will know how to balance all their responsibilities, meet their obligations and stay out of trouble. They will even have the foresight to start putting money away for the future too.
Without this knowledge, there's every chance they will run up massive debts which could hang over them for the majority of their adult life, and stop them from ever saving for the future or preparing for retirement.
Financial education at schoolThe government has acted to protect children from this kind of fate, by introducing personal finance lessons in secondary school.
However, there are two problems with this. As we mentioned, children have developed core values by the age of seven - long before secondary school. A survey of teachers by the Personal Finance Education Group found that most teachers thought secondary school was too late to start, and 83% said lessons should start in primary school.
Experian and Pfeg have been working to help teachers introduce these lessons earlier, with a series of excellent lessons plans and resources for primary schools called Values, Money and Me. They are designed to introduce children to the complex moral and emotional decisions they will face about money. So those with primary-age children may want to speak to their school about the resources that have available, and whether money ought to be on their agenda.
Five steps to take yourselfThe second problem is that the theory is only part of it: a major part of their learning also takes place in the home. In order to ensure they are learning the right lessons from you, you need to take five steps right now.
1. Get your budget in order
Much of what they learn will be from your attitude to money, so you need to get on top of this sooner rather than later.
We all know the theory that we ought to have at least as much money coming in each month as we do going out, but in practice it doesn't always work this way. If children see the monthly struggle to make the money stretch to the end of the month, they will come to see overspending at the beginning of the month as the norm.
To get yourself back on track you need to look through your bank statements for the last few months and write down exactly what you are spending your money on. Then go through an ideal budget - setting aside money for bills and food, then unavoidable spending - before working out what you will have left as discretionary spending.
If there is no way to make the money stretch, you need to go back to your budget and work out what costs you can cut - whether you can switch energy providers, move debts so you are paying a lower interest rate, or make other sacrifices such as long term subscriptions or expensive mobile contracts.
Even watching you go through the process of budgeting will be a valuable lesson for your children.
2. Get borrowing under control
Children who see their parents taking out loans and credit cards for unnecessary spending, will be inclined to assume that this is the right pattern for them. There are, of course, times when borrowing is absolutely the right approach. Mortgages, car loans, and borrowing for emergencies are all part of every-day life, as long as you have a responsible attitude towards repaying your debts.
We need to teach children about good and bad reasons to borrow, and we also need to teach them about responsible debt management. The best way to do that is to take control of your own debts.
A good way to do this is to get hold of your credit report from an organisation like Experian. This will list out all the credit cards, loans and overdrafts you have at the moment, how much you have borrowed, and how effectively you are repaying it. It will show details of how often you have been late with loan repayments, and where you are only making minimum repayments. You can use this to see where any problems lie, and where you need to increase repayments in order to pay your debts down.
3. Save for the future
If you set money aside for emergencies, big expenses like a holiday, or for your retirement, then not only will you ensure your safety net when you need the money, but you will also be setting a great example for your children.
Talk to the kids and include them in setting the savings goals, so later when you all have to make small sacrifices in order to achieve the goal they can understand the bigger picture.
They can similarly be encouraged to save their pocket money towards a bigger goal. One option is to tell children they can spend their pocket money that week, or put it in the piggy bank and you will match their savings.
4. Actively teach your children
Teaching children isn't just for schools. Parental education can start from the second they are old enough to hand over cash in a shop and wait for change. They can play money games like Monopoly, count money out for purchases, and join family discussions such as whether to go camping this year in order to save up for a break overseas next year. Car boot sales are a great way to teach them about the value of their belongings - especially if they get to spend anything they make from selling old toys.
5. Give them early responsibility
Everyone makes mistakes with money, so it's worth making them early and on a small scale. One option is to give your kids a monthly allowance, which can cover things like fashion, entertainment, apps and mobile top-ups. They may well overspend in the first week, and come to you before the end of the month to ask for more cash so they can go out with their friends. It's tempting at this point to come to their rescue financially, but they need to learn the painful lesson about overspending. Let them make the mistakes and face the consequences - before they are let loose with a credit card or an overdraft facility.
You may not like the sound of all of these steps - and your kids will certainly not enjoy some parts of the fifth one. However, there's plenty of this that can be fun, and in the process not only will you be teaching your children a better attitude to money - you'll be improving your own attitude at the same time.