Money is for life not just for Christmas

The money children receive for Christmas is an ideal opportunity for parents to get children into the saving habit from an early age. However, many parents do not know where to start when it comes to putting money away for their children's futures and educating them financially.

A family's attitude towards money drives financial education in the home, but there are also additional steps that parents can take into consideration.

Halifax, the UK's largest savings provider, provides a step by step guide for parents to help their children build an understanding of good financial practice and get them into the savings habit throughout different stages of their childhood.

Babies

Child Trust Funds are an ideal opportunity for all qualifying parents to start saving for their children's futures. Putting a little aside every month means that by the time children reach the age of 18 an impressive nest egg could be built up.

When children are born all parents in receipt of Child Benefit payments will receive an initial sum of at least £250 from the Government. For households where the income is £13,910 for the 2005/6 financial year and £14,155 for 2006/7 or less, this initial payment will increase to at least £500.

Qualifying children should also receive an additional payment of £250 at age seven, rising to £500 for children from lower-income households.

Parents, family and friends can also make additional tax-free contributions into Child Trust Funds, totaling £1,200 each year, until the account matures on the child's 18th birthday.

Toddlers

If a child gets into a good savings habit at an early age then this will prove difficult to break. Therefore parents should encourage their children to get into the savings habit as soon as possible.

Simple steps to follow include:

Provide weekly pocket money for each child, even if it is only a modest amount, and give the pocket money to them on a set day each week. Talk to them about what they are going to spend their money on and take time to explain the value of their money using examples they will relate to. For example, a week's pocket money may cover the cost of a comic, but if they want a new toy they might need to save up three week's pocket money.

If pocket money exceeds their prospective purchase, encourage them to save extra money in a piggy bank and explain how this can add up to an extra comic or toy in the future.

If relatives or friends give them sizeable amounts of money go to the bank with them to open their own savings account. Having their own savings account can help children to feel more independent and develop a sense of accomplishment every time they make a deposit.

Develop games and goals with their savings. If they save, encourage them to save a certain amount each month or a little bit more than they did last month. You could also reward their achievement by adding to the amount that they have saved.

Infants

At this age it is important to help a child to understand how a savings account works and to teach them the value of money. It is essential that they begin to realise that money does not grow on trees.

A valuable way to get children into the savings habit is through regular trips to the bank or building society to pay pocket money, birthday or Christmas money into their savings accounts. According to Halifax's recent pocket money research, a quarter of children (25%) save more than £5 per week and just under a quarter (24%) save less than £5 per week. Over half of children (54%) also save their money in a bank or building society account.

As children get older you can tie some part of their pocket money into carrying out certain chores around the home. This can be especially useful if they want to save for something particular, such as holiday spending money or a new video game.

Saving money in an account like Halifax's Save4it account, which enables the child to choose the name of the account, for example, 'First Bike Account,' will help the child to focus upon achieving their financial savings goal.

Take your children shopping with you and show them the price of what you buy, relating it in terms of their pocket money. Also point out comparisons of prices for similar goods between shops and explain how the money saved can be put towards another purchase in the future.

Teenagers

Teenagers not only need more independence, but also more responsibility on how to manage their own money:

At this age children will become more and more influenced by peer pressure, which can prove to be a costly experience for parents. However, it is also an opportunity to reinforce how saving can mean that they can afford to buy the same trainers or Playstation game that their friends have and therefore reinforce the value of regular saving.

Some parents may find that setting up "loans" for their children is an option. This means that if their children have not saved up enough money to buy a particular item they will receive reduced, or no pocket money, until they have paid for the item. Alternatively, they could make regular payments out of money they earn from part-time jobs. This is not for all parents and the opportunity to avoid repayment is easily latched on by youngsters, so a strong will is required if you want to go down this route.

Children do learn by example, so involve them when you are looking at paying for large items, like a holiday or a car, so that they can see how the parallel between the financial ideas that you pass on to them and how they are used in the grown-up world.
Discuss the option of your child setting up a cash card account. This way your child can still have a high interest savings account with small amounts of cash transferred to a cash card account to facilitate purchases.

You will also need to start discussing with your child whether the money you have put aside for when they turn 18, perhaps in a Child Trust Fund Account, will be spent or reinvested. This money could be used to fund the child's university education, or perhaps put aside for a new car or as a deposit on a house.

Those children looking to go into further education should also take a look at the different range of student current accounts available.

Encourage your children to expand upon their financial know-how so, for example, they know the difference between an ISA and a unit trust.

Mike Regnier, head of savings at Halifax, said: "When it comes to building awareness of good financial practice parents must adapt their approach towards the child's age. Financial education in the home will also be driven by the family's attitude and value of money."