Financial habits are formed by the age of seven, according to research by Cambridge University for the Money Advice Service. By this age most children are capable of complex functions such as planning ahead or delaying a decision until later, and understanding that some choices are reversible.
Learning to save
Junior Individual Savings Accounts (JISAs) are a good way for children to learn about the value of saving money for the future.
The advantage of a JISA is that they are tax free, and once the account has been opened by the parent or guardian, anyone can make contributions, including grandparents, friends and family. The saving limit for the current tax year is £4080. Children gain control of their JISA at age 16, but the money cannot be withdrawn until the age of 18.
At that point, the account is automatically converted into an adult ISA, and saving into the tax-free account can be continued.
Knowing how credit cards and loans work
It can be an important life lesson for older children to learn how credit cards work, and how interest charges are calculated, and how they can mount up if the balance isn’t cleared each month. When it comes to borrowing money, they need to know that there are many different types of loan available and it’s important to understand how to compare charges and interest rates. It’s also worth explaining to teenagers the value of having a good credit score and how this can improve their financial chances when the time comes to enter into big financial transactions like taking out their first mortgage.