According to research from Cambridge University, children form core behaviours about money by the age of 7, yet curiosity about the world of money and questions about personal finance start before this point and go on into adolescence. Yet, talking about money can be tricky, so here's how to answer the most popular questions kids ask about money.
Questions young children (aged 5-8) will ask
1. What does money do, and why do we need money?
From an early age, children will see you paying for things with money and a card and see what you get for this, for example, money for groceries and clothes, money to get tickets for the cinema and money for food when you eat out. So explain that money is a medium of exchange and that you will get something back by giving it to someone.
2. Why can't you go to the ATM and get more?
Young children watch and learn constantly, and seeing you go to the ATM is one of their first learning moments about money. They see you press a few buttons and get cash, so for them, it's like going to the fridge for a snack. Explain that the money is only given to you if you have money in the bank and that it's not a limitless supply. You have to earn more by working, to put money in there. Use an example of sweets in a jar. Put a certain amount of sweets in and say they can 'withdraw' as many sweets as they like, but when it runs out, the sweets are gone unless they work to put more back in.
3. What are some things you can get with money?
This is a great question to brainstorm the answer to with your kids. Talk about all the many things money can buy, from clothes and food to toys, somewhere to live etc. Then expand the answer to talk about how buying these things with money can bring bigger things like peace of mind, comfort and safety.
4. Why can't you buy me what I want?
It's never too early to talk about needs versus wants and the value of money. Explain to your kids that wants are desires, things you wish to have but can live without and needs are the things that are a necessity for you to survive, so money has to go on these things first.
Louise Hill, Co-founder and COO of GoHenry, suggests, "Use shopping for groceries as an opportunity to talk about wants versus needs. So we need the bread and the chicken, but we don't need - we just want - the chocolate cake and ice cream, for example."
5. Are we rich?
"Are we rich?" is a common query as kids are hyper-aware of the world around them. Start by getting them to tell you what they think 'rich' means. This then gives you context to answer the question - are they asking why you don't live like a celebrity, or are they asking if you have more money than others? Talk about what you feel being rich means for your family and say we are richer than some and poorer than others, and that's the case for everyone.
6. How much money do you make?
For many, talking about how much money we make is something we are reluctant to share with our children (partly because we know kids love to boast to other kids). Yet, it's a valid question for kids who are making the association between work and earning. Answer it by explaining that you earn enough money to ensure that you have enough money for necessities - house, bills and food but also fun things like holidays, treats and days out.
Questions pre-teens (aged 10-12) will ask
1. What is a loan?
In finance, a loan is the lending of money by an individual or organisation like a bank. The recipient gets the loan and is usually liable to pay interest (money for borrowing the money) on that debt until it is repaid.
2. What is a budget?
A budget is a plan for spending money each month. You can avoid falling into debt (where you owe money) or running out of money by planning where your money goes and comes from. The two essential elements required to make a budget are income (pocket money and earnings) and expenses (outgoings).
3. What is debt?
The easiest way to explain a debt is to relate it to a real-life situation. For example, if your teen borrows money from a friend to buy a pizza because they haven't got money on them, that debt must be paid back.
4. What are taxes?
Taxes are compulsory contributions from the money you earn, which are imposed on individuals or corporations by the government. Tax revenues pay for works and services such as the NHS, roads and schools.
5. Why do some jobs pay more than others
Just as supply and demand influence the cost of things, whether a pair of trainers or a house, it also affects how much companies are willing to pay for different jobs. An in-demand field that needs specific skills such as tech or medicine is always likely to result in a higher wage.
Questions teenagers (aged 13-18) will ask
1. How do stocks work?
Stocks work by giving you a share of a company. They rise or fall in value depending on how well (or not) the company is doing. For more information on financial literacy and how stocks work see Money Missions on the GoHenry app. It’s designed to accelerate your child’s financial education. To access, ask your child to log into their GoHenry app and head to the ‘Learn’ section.
2. How much money can you live on?
The real question is, do you earn enough for a decent standard of living? There is a minimum income standard for the UK that shows how much money people need so that they can buy things that everyone in the UK should be able to afford, but it does not show you what you require to meet all your individual needs.
3. How much do you save in a week? A month? A year?
It's recommended that having at least three months' worth of salary in your savings, is the optimum amount to save. This acts as a safety net should you lose your job or have unexpected expenses.
4. What causes inflation to go up?
Inflation is the rate at which prices for goods and services rise. This can be caused by a shortage in supply when overall prices increase due to increases in the cost of raw materials or wage increases to help workers maintain their living costs.
5. How do banks make money?
Banks make money by providing and earning interest from loans such as mortgages, business loans, and personal loans. Customer savings provide banks with the money to make these loans.
6. What does it mean to "spend within your means?"
Spending within your means is using your money and not borrowing and going into debt. It's the reason to create a budget, track your outgoings, save money and set limits on your spending. These are all things you can help your child learn with regular pocket money, a GoHenry prepaid debit card and our accompanying app.
How can GoHenry help answer your children’s questions about money?
If you're looking for ways to improve your child's financial knowledge and help answering questions about financial topics our in-app Money Missions can help. These fun bite-sized lessons are targeted to your child's age and knowledge level. There are quizzes on jobs & earning, budgeting & plans, modern money, and more.
Learn more about GoHenry prepaid debit card today.