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How to talk about money with your kids to set them up for success

Discussing money with your teenager can seem like quite a daunting task, but it’s an important step. We’ve put together some tips to help guide you through the conversation.

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Helping young people manage the transition into financial adulthood can help ensure they don’t make financial mistakes that could negatively affect them in the future.

But while most parents talk to their children about the 'birds and the bees', two thirds of 15-17 year olds say their parents have never discussed the importance of finances and credit agreements with them.

Why does it matter?

For those that are unprepared, problems can quickly spring up. Research reveals that 7 in 10 British 15-17 year olds will spend on credit or take out a loan within a year of turning 18. And it’s not just a small amount, as one third were planning to borrow, on average, £1,891 within just a month of their 18th birthday. Yet, a quarter admit they’ve given no thought as to how they will pay it back. And 1 in 5 said they’d expect their parents to bail them out if they had a financial problem.

Taking time to discuss money with your kids can help make sure they make more informed decisions and will help set them up for future financial success.

When should I have the money chat?

It’s important to talk about money with your kids throughout their childhood and the Money Advice Service already offers some really useful advice for parents of younger children.

But from the age of 18, your kid becomes a financial adult. They’ll be legally responsible for their money and able to access credit for the first time. So it’s a good idea to talk as they approach their 18th birthday, before this new world opens up to them.

How should I start the chat?

Talking to your kids about money is never easy. It may be easier to prepare what you’re going to say before launching into the conversation. One good way to frame the discussion might be to talk about how to avoid embarrassing moments, such as your debit card being refused in front of friends. It may be off-putting to launch straight into a discussion around pensions and cash flow, but starting with topics applicable to their daily life can help get the conversation going.

It may also make sense to offer small tips as part of your everyday life. For example, next time you pay with a credit card, explain that it’s borrowed money and how you plan to pay it back. Either way, it’s really important to listen, as well as talk. Make your money chat a conversation, not an interrogation.

What do I say?

Here are five of the key topics to cover and help your teenager to understand:

  1. Highlight the importance of a personal budget. An important part of financial independence is learning to make and manage a personal budget. Helping your teens get to grips with their income and what they’re spending can help make it easier for them to plan for the future. The Money Advice Service offers a range of excellent free budgeting tools.

  2. Suggest getting into a savings habit early. Saving regularly is a good habit at any age. But if you’re trying to help your teenager save, then encouraging them to get into the habit early helps make saving seem more routine. Try talking about the need for an emergency fund using examples that are relevant to their life. Maybe they’ve just got their first car, so making sure they have some money saved in case it needs a repair, could help motivate them.

    There are some great apps on the market, designed to help with saving. For example, Chip, automatically saves small amounts of money without you really noticing to build up a safety net.

  3. Ensure they know how to handle credit. Turning 18 opens up lots of new possibilities, including taking out credit cards, store cards and loans. Credit is an important and relevant part of managing finances, but taking on too much debt can become stressful and put your teenager at risk. It’s important to explain how to handle it responsibly and to stress the need to have a plan for repaying credit.

    Research has shown that only 8% of 15-17 year olds could correctly define the meaning of APR. So, taking time to run through explanations of credit jargon could also be helpful.

  4. Explain what a credit score and report is, and why it’s important. When you’re 18 it’s easy to believe that things you do now won’t really affect you in the future. In reality all our financial actions are recorded on our credit reports, regardless of age.

    Any negative information, such as late or missed payments can stay on your credit report for around six years. It’s important to explain that, if this happens, it can make it harder to get credit in the future. Lenders may even offer much higher interest rates on any future credit applied for.

    It's worth mentioning that your credit history can also affect more than just your finances. For example, some employers and landlords perform credit checks before offering a job or place to rent. To help those who are a bit more inexperienced with credit, we’ve created a set of free coaching tools. These use interactive chatbot technology, to help build a positive credit score and they can help your teens make the right financial decisions.

  5. Introduce the basics of staying safe online. Identity fraud happens when a fraudster finds out enough information about you that they can pretend to be you. This means they can open accounts, get hold of official documents, buy things or even take out credit in your name. All without your permission. Highlight the importance of password safety and examples of scams they may be exposed to. You can check out our top tips for staying safe online here.

Hannah is currently studying for a Master's in Comparative Cultural Analysis. She knows all about personal finance, but as a student, she's an expert in money saving tips and tricks.