direct lender advice on saving money

Five ways to turn your children into savers

If you could turn back time, there are probably many things you would change about your life. And, for many of us, learning how to manage and save money is one of these things.

If you know that you could have done a better job of managing and saving money through the years, one very important thing that you can still do is to teach your children how to do so. Children begin to develop attitudes and habits about money from the age of around five, so the sooner you start to help them understand more about money, the better.

Learning about money is also known as financial literacy. It means that you have an understanding of financial concepts such as budgets, savings, responsible borrowing, and how to manage debt. 

It’s important to help your children become financially literate, so that they are able to handle their own money and also to understand and use financial information to make well-informed decisions. And research shows that adults do better with money if they have had conversations about money as children and were responsible for managing and saving their own money from an early age.

So in this article we look at five ways to help your children become financially literate, and turn them into savers. And we then suggest five of the best places for your child’s savings.


Five ways to turn your children into savers

For a child to understand the importance of saving, they also need to develop general financial literacy skills and become confident in handling money. Here are five things to teach them to help them become financially literate:


  • Everything costs money

Children need to understand that nothing is free: everything costs money. They also need to understand that some things cost more than others, and gradually be able to start differentiating between what costs a lot of money and what does not.

You can help them to do this by looking at prices when they are out and about with you. Whether you are shopping or in a cafe or on a day out, help them to understand how money is used to buy certain things, and how some prices are higher than others.


  • There is a limited amount of money available

There’s the old saying “money doesn’t grow on trees”, and this is a major lesson for children to learn. They need to understand that for most people there is a limited amount of money available, and at some point it will run out. 

You can help them to understand this by showing them different things in a shop or cafe and explaining that they can only buy items up to a certain value. This will help them to start learning how to prioritise rather than assuming that they can just buy whatever they want.


  • You need to make the effort to earn money

Whilst very young children may be given pocket money, it’s a good idea to give your older child jobs to do in return for money, either as well as or instead of their pocket money. You could either give them regular jobs, or have a jobs list with the going rate they will be paid if they do them. The more jobs they do, the more money they earn.

This will help them to learn the value of money, and to understand the concept of having to make the effort to earn money. It could even be the start of your child becoming an entrepreneur later in life, by looking for opportunities to do something different to make more money!


  • You need to know where your money is going

However young your child is, and however little money they have, it’s really important to help them to understand how to keep track of their money. They need to know how much money they have, plan how to spend it, and see how their spending is affecting the amount of money they have left. These are essential life skills that will be invaluable later in life.

If your child is using cash, help them to find a safe place to keep it, such as a piggy bank, cash box or purse. Also make sure that they have a special notebook where they can write details of everything they spend. Then regularly help them to count their money, work out how much they have left, and make sure that the numbers all add up.

Another option for children’s money is a prepaid card such as GoHenry, Osper or Rooster. These enable children to spend money without carrying cash, and there are related apps to help them track their spending.

For older children you may want to set up a bank account with a debit card. Most banks offer a children’s bank account, and they can then manage their money online or by using a pocket money app.


  • Always save some of your money for the future

The earlier you start your child on their savings journey, the better it will be. Financial experts recommend that people should save 20% of the money they earn. Even though most adults probably don’t manage to do this, it’s worth encouraging your child to do it right from the start, before they develop too many bad financial habits. 

In our next section we take a look at five places that your child could put their savings.



Five of the best places for your child’s savings

There are a wide range of options for your child’s savings. When considering the best option for them, you need to think about how easily accessible you want the savings to be. For example, do you want your child to be able to get their money quickly and easily if they see something they want to buy, or if they need spending money for a family holiday? Or do you want them to put away at least some of their savings for their long-term future.

Let’s take a look at some options for all these scenarios:


  • Savings account

Opening a savings account for your child at a bank or building society is an obvious place to start. If you do this, make sure that you open a specific children’s savings account as children’s accounts usually offer a higher rate of interest than a regular savings account.

Also check the access arrangements for the money, depending on the needs of your child. You are likely to get a higher rate of interest if you are able to lock the money into an account with limited withdrawals allowed.

But try to encourage your child to keep at least some of their savings in the account as long as possible. Even if they only put in £10 a month from the age of 10, this could give them a nice little nest egg of around £1000 when they turn 18.


  • Premium bonds

Another option worth looking at for your child’s savings is Premium Bonds. These can be purchased in £25 batches, up to a maximum value of £50,000. 

Premium Bonds don’t earn any interest, but are entered into a monthly prize draw for prizes between £25 and £1 million, which can be a fun option for children. Chances of winning a prize increase with the more bonds that you have, and the average equivalent rate of interest – based on prize winnings – is around 1.4%.

Premium Bonds are a safe savings option in that their value will never go down, and your child can cash in their bonds at any time.


  • JISA – Junior cash ISA

A Junior cash ISA – JISA – enables your child to save up to £9000 a year. Interest rates on JISAs are quite high at the moment, so your child could get a good rate of return on their savings. 

A JISA is a long term savings option, because your child would not be able to withdraw the money until they are 18. However, there would then be no tax to pay on the interest they have earned on the account.

A cash JISA is also a safe option in that your child’s savings will never lose their value.


  • Junior stocks and shares ISA

An alternative to a cash JISA is a stocks and shares ISA. In this JISA, your child’s money is invested in stocks and shares rather than collecting interest. It’s important to be aware that because of this, their savings could decrease at any point. However, there is also the possibility that they could increase considerably. 

So a stocks and shares JISA is not without risk, but could be worth putting a small amount of savings into to see if it yields a high rate of return.


  • Starting a pension for your child

We associate pensions with older people, but it’s a little-known fact that you can set up a pension on behalf of any child under 18. You can then pay up to £2,880 per year into it, and this money will benefit from 20% pension tax relief. So, if you did pay in £2,880 you would also gain tax relief of £720, boosting the total to £3,600.

However, the pension would be a very long term investment. Your child would not be able to access the money until they are aged 57! But even so, it could be worth putting aside a small amount of money, even just for a short while, so that they will have something to help them and their family later in life.


We hope that the above ideas help you to turn your children into savers and then decide on the best place(s) to keep their savings.

Check back here soon for more financial and lifestyle tips from direct lender Munzee Loans.