How to raise a financially savvy child? It all starts at home

Every day, parents make sure that their child is healthy, receives a good education, gets enough exercise, and feels safe. They think about their child’s future years in advance and make decisions that will help them manage better when they begin living independently. Yet, one important topic is often overshadowed by others: the financial health of the child. How to teach your child to manage their money? When to talk about saving? How to develop habits that will enable them to make informed financial decisions in the future?

Unfortunately, financial literacy is not yet taught in Estonian schools to an extent that would enable young people to acquire all the necessary knowledge. That is why financial literacy begins, first and foremost, at home. Children learn money-related attitudes much more by observing their parents than by reading textbooks.

Financial matters begin long before the first payday

Many people associate a child’s first bank account or bank card with starting school. In fact, you can open a bank account for a child immediately after birth. Of course, this does not mean that a newborn would start using money. However, it does provide an opportunity to start planning for their future consciously. Opening an account helps to pool savings and gifts intended for your child and to set up a system designed to support their future needs.

The LHV Youth Card can be ordered for a child from the age of six. It is often at this age that children first find themselves in situations where they have to use money independently: buying something at the school buffet, having an ice cream with friends, or making a small purchase at a bookshop. At the same time, control remains with the parent, who can monitor transactions, set limits and, if necessary, direct the use of funds.

Young people are the poorest of the rich, so time is the child’s greatest advantage

When asked what the most important resource is when it comes to investing, many people think it is money. In fact, time is at least as important. A child has something that an adult can never get back: decades of time. The sooner you start saving or investing, the more time the money has to grow.

One of the main reasons why people decide to simply save money or put off investing is fear and uncertainty about where, how, and how much to invest. The LHV Growth Account was created precisely to make investing manageable for everyone.

The amounts do not have to be large. If a child builds up a small amount of capital from birthdays, Christmas, or money set aside on a monthly basis, it may become a substantial financial head start for them.

Even more important is the habit itself. If a child learns from a young age that some money is spent, some is saved, and some is invested, this way of thinking becomes second nature to them.

As an adult, you have to start paying rent, utility bills and insurance premiums, and there are many other expenses on top of that. There are usually no such duties in childhood, and that is why this is the ideal time to develop good financial habits.

Small goals teach big skills

It is not worth talking to children solely about distant and abstract goals. It is much easier to learn when the aim is specific and clear. For example, a child might save up for a new bike, a game console, a summer camp or a school trip. If the goal is clear and tangible, it is easier to understand why it is worth putting money aside.

A parent can help their child plan towards this goal. If the desired item costs EUR 300 and the child saves EUR 25 each month, the maths becomes practical, and the child can see how consistency leads to results. Experiences like these teach children more than any school lesson on budgeting or saving.

It is becoming increasingly common for the monthly child allowance from the state to be transferred to the child’s Savings Account, and sometimes a little more is added to it by the parent. The national child allowance for the first and second child is EUR 80 per month. For example, LHV statistics show that, on average, an average of EUR 90 is paid into minors’ Growth Accounts each month.

(Grand)parents can also play their part in building the future

In many families, it has become customary for grandparents to give children money: whether for their birthdays, at Christmas, or just to make them happy. If some of that money goes straight into the child’s hands, it’s a good opportunity to teach them about financial literacy. At the same time, both parents and grandparents could make a conscious effort, within their means, to start saving for major future expenses, for example, by setting aside a small portion of the money originally intended for gifts and transferring it to the child’s Savings Account, which the child will be able to access once they reach adulthood. Some families go a step further and, where possible, regularly set aside child benefits, thereby helping to consistently build the child’s sense of financial security.

Years later, the money saved will help cover, for example, the cost of obtaining a driving licence, furnishing a first home, or expenses related to studies. In many parts of Estonia, continuing one’s education after basic school or upper secondary school means leaving home. Sometimes you have to move to a secondary school in another city, and even more often to university. At that moment, the buffer built up over the years may prove to be extremely valuable.

10 questions to ask when talking to your child about money

• What’s the one thing you’d like to save up for right now?

• If you had EUR 50, how would you use it? Why?

• In your opinion, what is the difference between a wish and a need?

• Has there ever been something you really wanted to buy that, after a while, didn’t seem quite so important anymore?

• How much time or money would it take to achieve your next bigger goal?

• What might the family need money for that isn’t being spent today?

• What sort of unexpected situations might a family need to have savings for?

• Could money grow in addition to being saved? How do you think that’s possible?

• What has been your best or smartest purchase so far?

• If you were a family finance minister for one day, what would you spend on, save on, and collect for?