It is quite amazing that while many young people leave school or university with a string of academic qualifications, they are at a loss to know how to organise their personal finances in the adult world.

Unfortunately, even now, many schools and educational establishments fail to teach even the basics of financial management, so it often falls upon the shoulders of parents to accept that responsibility.

It is good for kids to get pocket money but it is even better if they are taught from ‘day one’ where it comes from and how they should manage it.

No such thing as a ‘Money Tree’


When you give your children their pocket money, you should explain to them where it comes from, otherwise, they won’t appreciate it. Simple things like saying that Mummy, Daddy or some other wage earner in the household, has to get up and go to work just so that they can ‘put food on the table’ and have enough left over to share with their children helps, but even better if you explain to them what their work actually involves and if they don’t work they don’t get paid.

Children need to understand at an early age the value of work and where the cash comes from – that puts money into some kind of perspective – it can be seen to have a real value.

Talk to your teenagers

As they get older talk to them about money – involve them in how money works and how it is spent. Most children have really no idea what a mortgage or utility bills are or how they have to be paid.

Tell them that money spent on credit cards has to be repaid and holidays don’t come free.

Explain to them, in simple terms, what a loan is i.e. a promise that in return for borrowing money you have to make sure that it is repaid with interest in full and on time. Explain what interest is. If they understand the basic principle of interest, they will understand why banks and building societies lend money – in order to make a profit themselves. They will get to know the basics of how money works.

Practical examples

Even better – show practical examples. If you have a car on finance, explain to them why you bought the car when you didn’t have the cash available and how much it costs per month to pay the loan back. By actually showing them statements and your monthly budgets they will begin to understand how the world that they will enter into actually works.

Try to involve them in some of your other financial matters too. Explain to them why you have loans and what you took them out for. Buying a car on finance over a few years is a major expense, and something they should understand quite easily but perhaps you have taken other loans to pay for a new extension to the house, an overdraft to tide you over whilst changing jobs or perhaps a payday loan to cover the cost of an unexpected expense such a car or boiler breakdown. Explain the reasons and how you are able to cover the repayments.

Understanding financial commitments and responsibility from the ‘get-go’ will help them in later life.

Encourage saving


We now live in a very ‘instant-gratification’ society – we want things now, and we don’t want to have to wait. This is the root of many financial problems. Rather than save up for something, as previous generations have done, credit is widely available to most young adults and unless they understand the commitment to repay any borrowing they can find themselves with financial problems in the future which can lead to excessive debt and the associated problems that can go with it.

While they are still young children, get them to open a children’s savings account and let them watch their money grow. It can be fun for them and help teach the principles and value of saving

Encouraging your children to save at a young age is a good habit to get them into and will help them in later life.

Financial independence will set them up for life

One day, sooner or later, your children are going to leave the nest and have to look after themselves.

Hopefully, by that time, you will have taught them how to manage their money well, the basics of personal finances and the importance of credit and how it works. For many, the first time they will need to manage their money will be at university, so the more prepared they are the better.

By knowing how the world of finance works, when they are ready to borrow money at some point in the future, they will be able to make thoughtful and informed decisions and avoid the pitfalls and dangers of financial ignorance.