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5 practical ways to teach children how to use their Christmas cash

child receiving gift from Santa Claus

What would you like Santa to bring you this year? If you’d like gifts of cash or vouchers, you’re not alone.

A new YouGov poll reported in the Independent has revealed that money or gift cards are the top Christmas presents adults are hoping to receive in 2021. 27% of respondents chose this option above clothing, an “experience” such as a concert, or alcohol.

While this poll focused on adult requests, it’s likely that the children and grandchildren in your life may also be asking you for cash this Christmas. So, if you have little ones likely to receive a tidy windfall this year, here are five tips for teaching kids about money matters.

1. Introduce the concept of “spend, save, give”

If you choose to give a financial gift to a child or grandchild this year, it’s a great opportunity to introduce the concept of “spend, save and give”.

  • Spend – the child can spend an agreed portion of their money on whatever they want
  • Save – the child saves a second portion for a specific purpose, or for longer-term savings in a savings account
  • Give – encourage the child to use some of their money to help others. They might donate a small regular sum to charity or save this up and make a larger donation to Children in Need or Comic Relief.

This approach helps children to budget, and to consider having separate posts of money for different purposes – just as we all do in adult life.

2. Pay them interest on their savings

Encouraging a child to save towards a longer-term target helps them to understand that resisting the temptation to spend immediately mean they could do much more with their money.

One way you could encourage them to put money aside is to agree to pay them interest on their savings. If you do this weekly or monthly, they will see how they can reach their goal more quickly and understand the benefits of longer-term thinking.

For older children, you could promise to pay them a “bonus” if they hit a savings target you agree. For example, if they’re saving for a new game that costs £50, you could give them the final £5 if they can save £45.

3. Let them make mistakes

When children manage their own money, it’s important for them to make choices and deal with the consequences of their actions.

Only by experiencing negative consequences first-hand can they learn to make better financial decisions.

If you let them take responsibility for small sums and allow them to make mistakes – perhaps by spending on instant gratification and then having no money to go out with friends – they will learn to make better decisions.

4. Use actual cash

These days, there are dozens of apps that can help children and teenagers to manage their money. Apps such as GoHenry and Rooster Money can be a great way of teaching kids how to manage real or virtual cash.

However, you should always begin by using actual notes and coins. Teaching children to save and send using real money helps them to visibly see what they have, and it can make their learning more tangible.

For example, you could pay bonuses or interest in cash. Alternatively, you could pay pocket money or pay for chores around the house in real money, letting them divide it up into their “spend, save, give” pots.

Once they are used to managing cash, you can then move on to the more difficult concept of virtual or digital money.

5. Explain where money comes from

While a Christmas gift of cash might come from you (or from Father Christmas!), it’s important for children to know that money needs to be earned and that it doesn’t just come down the chimney once a year.

Talk to your children and grandchildren about your job, and what you (and other people they know) have to do to earn money. If they understand early that money is earned – perhaps you can pay them for jobs around the house – then this will instil good habits for later life.

Get in touch

If you’re thinking about starting to save for a child or grandchild, or you’d like to explore what to do with your own Christmas cash, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416 653.

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