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7 Crucial Terms Children Should Know About Money Management

Teaching your children about the complexities of money management might seem very difficult at first, but these terms are a good place to begin…


There are plenty of things we all want our children to learn from a young age. Learning to treat others with kindness and respect, honesty, and how to be physically healthy are all some of these values and life lessons. But what about money management?

While it’s very unlikely that any parent is going to trust their children with their debit cards right away, it’s important they get a basic comprehension of money early on. Making sure they know the importance of managing it is crucial so they can effectively protect their money as they grow older.

Learning about this early on should also help them to avoid debt, statutory demands, and even a winding up order when they grow up. In this post, we’ve put together seven of the most important terms about money management we think that children should get to grips with. On to the list…

7 Crucial Terms to Teach Your Children About Money Management

1.    Savings

Savings is one of the most important terms you can teach your children, even from a very young age. Not only does it help to teach them how to act responsibly with money and to ‘put some in reserve’, but it’s also very easy to teach in a practical sense.

One simple way you can teach a child about the concept of saving, or setting up a savings account, is the following:

  • Give them two sweets.
  • Tell them they can eat one right away.
  • The other must put away somewhere safe.
  • At the end of the week, they’ll be able to see that they’ve saved seven sweets which are theirs to do with as they wish.

2.    Budget

Budgeting is absolutely essential, especially in situations where money proves to be a bit tight. It’s unlikely that your children are going to go through their whole lives without having to carefully plan out how they’re going to spend their money and on what. So, teaching them about budgeting at an early stage is crucial.

This could be done in a simple setting, such as a supermarket. Presenting them with two options, one being cheaper than the other, helps to contextualise the money you can save by making certain budgetary choices. That extra money can then be used to help pay for something else.

3.    Loan

As your children start to grow older, the concept of loaning will become increasingly familiar. While they probably won’t be able to immediately relate a loan as something to do with money, chances are they’ve loaned something to a friend in the past – possibly a toy or a DVD.

This means that explaining a monetary loan is quite simple. Applying the same principle, you could outline that if there is something they would like to buy, they can have the money for it straightaway. However, any pocket money they receive will be used to pay for it in the future.

4.    Interest

When loans are fully understood by your children, it’s worth detailing what interest is and how it can be applied to these same situations.

Using the same scenario, you could give your child two options. If they want to pay for something right away, you could offer to loan them the money, but charge one percent interest for every week it takes them to pay you back. Otherwise, they can choose to wait before they have the money themselves.

This should give them an understanding of how important interest is and the sort of effect it can have on the decision to take out a loan.

5.    Debt

To finish off this trifecta of money management terms, debt is very easy to explain once you’ve nailed down what loans and interest are. You can use the same example as the previously two points and outline that, until the money is paid back, they are technically in debt.

As they grow used to these terms and they fully understand how they work, you can start to run through the fact that they are simply a part of everyday life and aren’t terms to be afraid of. For instance, anyone who has taken out a mortgage is technically in debt.

6.    Investment

The best way of describing investment to a child is to say that you spend money to make more money. Of course, this is a huge simplification, but it’s easy to comprehend.

You can show a child how investment works by working with them to create a piggy bank that they contribute to. For every £10 they save, you can give them an extra £1, which gives them an extra incentive to invest in their savings.

7.    Taxes

The famous phrase ‘the only two certainties in life are death and taxes’ is probably a tad morbid to tell your children. That said, it doesn’t mean you shouldn’t at least try to explain what taxes are and how prevalent they are in life.

This might be one for older children, but it shouldn’t be too difficult to explain. It may be worth taking a look at something tangible, such as the NHS and hospitals, and explaining that people help to pay for it with small portions of the money they earn. That should help them to understand that everyone makes very small contributions that add up together to help pay for something much bigger.

Are There Any Other Money Management Terms You Think Children Should Know?

And there you have it! If you’ve already tried to teach your kids about managing money and finances, you’ll be able to attest that it isn’t always the easiest task. But, as your kids grow older, you’ll definitely be thankful that you made the effort to educate them from a young age.

There are a countless number of money management terms out there to add to this list. So, if you think there are any more which are absolutely essential to teach children, feel free to leave them in the comments below.

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