Teaching your child financial literacy

Children begin to form attitudes and habits around money from an early age. Research shows that children who don’t learn about money skills are more likely to face difficulties later. To start, you might introduce the concept of earning (for example by chores or pocket money), saving (putting some aside rather than spending it all) and spending (making choices about what to buy).

Why is it important? Because giving your child an early foothold in money management helps avoid common pitfalls in adulthood such as uncontrolled spending, lack of savings or unfamiliarity with banking and budgeting. Starting young also means you have time to build habits and confidence, rather than waiting until your child is already juggling part-time work, bills or adult choices.

Here are several key financial literacy terms and everyday examples you can use to explain them to your child:

Budgeting

Planning what you expect to earn and what you expect to spend. If your child gets £5 this week, you might say ​“we’ll put £2 into savings, and you can spend the rest on something you want”.

Saving

Delaying spending so you can have something later. Help them to set a goal to save for a new game or gadget; once they have saved enough, they can decide whether to spend it or wait.

Spending wisely

Choosing what you buy and understanding opportunity cost. If your child buys a magazine for £4, they’ve given up the chance to buy a chocolate bar and also save some money. Help them to understand this by using practical examples when you are out and about.

Credit and debt

Borrowing money that must be paid back (with possible extra cost, called ​‘interest’). Explain this to your child by using a simple example: if they borrow £5 from you to buy something today, they’ll need to repay £5 plus a little extra later. This shows that borrowing can be helpful in some situations but also comes with responsibility and consequences. 

Investing

Putting money into something (usually called a ​‘fund’) that has the potential to grow in value over time. 

Compound interest

Earning interest on interest. This can be shown by letting your child see how savings grow when left for a while rather than spent immediately. Demonstrate compound interest by helping your child save a small amount and adding a little interest each week or month. For example, saving £10 and adding 10% means £11 after the first month, then £12.10 the next. This shows how money grows faster over time when you earn interest on both savings and previous interest.