How to talk to seven and eight-year-olds about money

How you talk to children about money when they’re this young helps to make sure they’re able to make good decisions when they’re older.

And you don’t have to be a financial expert or manage your own money perfectly to be able to give them good advice.

By the ages of seven or eight, many children understand:

• the difference between ‘needs’ and ‘wants’
• ways of paying that don’t involve cash, such as debit and credit cards, and online payments
• the importance of keeping track of spending and saving
• lending and borrowing.

You can now build on this understanding by helping them to make good decisions. For example:

• they might be getting more independent with their money and deciding on what they spend it on, but will need help to develop healthy money habits
• they might save up for things they really want, but they won’t always be happy with their decisions. They might need help to learn from the choices they regret.

If you give pocket money, how much isn’t important. Giving children even the smallest amount of money regularly is a great way to help them learn how to manage money.

This could be pocket money or paying them for chores they do around the house, or both.

This means they can save and spend their own money rather than yours! This helps them to practise learning to save up for the things they really want.

Some people encourage children to have three jars for their money:

• One to spend, and maybe save for treats (such as games).
• One to save for long-term goals, like an Xbox.
• One for giving – maybe to a charity or cause the child cares about.

Until now, children tend to learn about money by watching what you do with it. Around now is a good time to get them more involved.

There are plenty of opportunities to talk about money, both at home and when you’re out and about.

• Needs versus wants. Together, you could make a list or draw a picture of what people need and what they want. Use it to talk about the difference between the two.
  
• Online buying. Perhaps let them buy something online with your supervision. Explain how important it is that you’re around when they do this while they’re this young. Talk about how buying online can be so easy that you can lose track of how much you’re spending. And how important it is to take time out to think before buying online.

Trips out are great ways to have conversations with children about money.

At the shops:

• Ask them to help you compare prices. Look at brand-name items and own-brand products. Talk about which ones cost more and why, and how you can save money.
• Talk about adverts and encourage them to explain how they’re encouraging people to buy them by making the product look more appealing. Discuss whether things are always as good as they look. Have they ever bought something that wasn’t as good as they expected? How did this make them feel?
• Talk about alternatives to buying that can save money. For example, can they borrow a DVD from the library or from a friend instead of buying it? Or make ice lollies rather than buying them?

At the beach:

• You can take a picnic and games to the beach – and have all you need for a fun day out that doesn’t cost money.
• See who can come up with the most ideas for free activities. And talk about how free days like this helps you to save.

A big reason children (and adults) can struggle to save money is they find it hard to wait for things they want. If they want something, they want it now.

At the age of seven or eight, children are still developing willpower and the ability to delay having something now (such as buying sweets) for something better later on if they save (such as a new computer game).

The marshmallow test is a famous psychological study where children can choose to have one marshmallow now or two if they can wait 15 minutes.

The adult leaves the room, leaving the child with one marshmallow. Will they eat it or hold out for that extra one in 15 minutes’ time?

Try this using any treat. Explain how money is similar and that waiting can help money grow.

Seven to eight-year-olds tend to want what their friends have. This is because they’re reaching an age where peer pressure is playing an important role in their lives.

This is why it’s a good time to teach children self-discipline and help them start building their self-identity.

When they seem to want things because their friends have them, perhaps ask them questions that make them think more about their decisions. For example:

• What does it mean to have the same things as their friends?
• Why do they want the same things as their friends?
• What do they have that their friends don’t have?

They’re bound to make bad decisions along the way. For example, saving for something they want then caving in to peer pressure and spending their money on the same new toy their friend has and then regretting it.

This is a great way to learn about making careful decisions when it comes to money.