Seven ways to teach your kids about money

1. Show them the money. It is never too early to teach your children about finances, especially as money can seem almost invisible to them at times. Internet banking, online shopping and card payments often mean some children hardly ever see notes and coins. If they do, it tends to be notes coming out of a cash machine, so start young and tell them that the bank is looking after the money you earn. Play shops not just with plastic toy coins, but with real cash.

2. Make saving fun early on. Giving pocket money from around age three can help children better understand the value of money, especially if you encourage them to save towards something they dearly want. A good way of encouraging saving at any age is to reward them, either by matching what they put aside or agreeing to put something towards it. If they pay for something with pocket money or birthday money, they know exactly what they are getting for their cash.

3. Count the cost. Talking about how you earn your money and how you then spend it is an excellent life skill at all ages, and helping with shopping is a great start. By the age of 10, they should be able to go into a shop and buy a snack or drink, and know exactly how to count out the money and the change they should receive. The next step is going on an errand to buy bread or milk, which is valuable at all ages, especially when you consider the number of teenagers who know exactly how much the latest phone or pair of trainers cost, but have no idea how much a pint of milk or an electricity bill is.

4. Teach them to budget. Start by always giving them pocket money on the same day. Once they are old enough, encourage them to write down what they spend so they know exactly where their money goes. There will definitely be some tricky moments when they spend the lot immediately and then start pestering for more, so agree from the start on what you will pay for and what they will pay for, depending on age. Don’t buckle under pressure, especially to start with, although as they get a bit older be prepared to provide the occasional loan that must be paid back on an agreed date.

5. Teenage traumas. Getting a first job is a financial rite of passage and often a horrible one, not least because teenagers often embrace it with such innocent enthusiasm. It is heartbreaking to watch their good cheer melt away as they are faced with less than minimum wages, long hours and grumpy customers and employers. However, this isn’t the moment to encourage them to give up so you can subsidise them. It’s the hardest way to learn the value of money – but it works far better than any parental chat. You should also resist the temptation to try to control what they spend their hard-earned cash on – they worked for it and, if it is splurged on something you consider highly frivolous, you can mildly advise but don’t expect instant agreement.

6. Family finance. Rather than just saying “We can’t afford it”, explain why. Talk to your children about all the different things that have to be paid for, including tax and national insurance, along with mortgage/rent, council tax, utility bills, insurance, phone and broadband and the weekly shop. Add costs for hobbies or club memberships, and give them a clear picture of the difference between a wage and disposable income once all the necessities are paid for, which will come as quite a surprise.

7. Skint students. If they head off to college, this is theoretically when all those years of training kick in and they leave with a full understanding of the value of money, how to save and the need to budget. In reality, the first instalment of a student loan will make the majority feel recklessly rich, and telling them they will probably graduate with a debt of more than £40,000 will mean absolutely nothing. Students tend to be hit on by loads of banks, so explain the difference between an interest-free overdraft and a credit card with 16% APR. It is a good time to start a reasonable credit rating as they take over their own mobile phone contracts and register on the electoral role.