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Know the facts

Here are some simple ways to help explain about banking and finances to your child/children.

Know the Facts: Building Societies and Banks

Building societies and banks offer a huge range of financial services including accounts (e.g. current, savings and business), loans, mortgages, insurance, investments, credit and debit cards, overdrafts and foreign currency exchange. Some of these services are also offered by other organisations such as the Post Office and some supermarkets.

One of the services that most people will have is a building society or bank account.

What does having an account mean?
  • It keeps money safe (so it won't get stolen or lost).
  • It lets you get your money out when you need it (from branches or cash machines).
  • It can pay your usual bills regularly.
  • It lets you pay for things over the phone, on the internet, or in person.
  • It lets you manage your money by keeping track of everything.
  • It can sometimes lend you money (but it has to be paid back).
  • It can give 'interest' on savings, therefore making your money grow.
  • There are different types of accounts with different terms and conditions (e.g. instant access to your money).
  • Savers should look for high interest rates to earn as much interest as they can.
Some of the services offered by an account include:
  • A chequebook (for you to write out cheques).
  • A cheque guarantee card (this gives you cash up to an agreed amount and is a safeguard for the cheque).
  • A cash card (allowing you to get cash 24 hours a day from a cash machine).
  • A direct debit facility (for paying bills automatically).
  • A standing order facility (for paying any regular bills).
  • Monthly statements (telling you all the transactions you've made on your account).
  • Overdraft facilities (if they allow you to borrow more money than you have in your account).
  • Telephone and online banking (so you don't have to personally go into the building society or bank, but can carry out transactions by phone or computer).

Know the Facts: Why Budget?

Managing money is an important lifeskill. A good way for young people to get started is to learn how to budget: planning for what comes in and what is needed to pay out. Making a budget sheet (on paper or on a computer spread sheet) is a great habit to get into (for parents as well as children!). It's easy to show your child how to do one, and you can make them as simple or as detailed as you like. Here are some ideas:

  • Together, collect all your building society, bank or credit card statements (if you can get at least two to three months that would be great). Here, you can explain all the money that comes in (wages, gifts, interest, etc) and all the money that goes out (standing orders, direct debits, cheque payments, etc). If you find it difficult to explain some of the financial terminology - have a look at the glossary in this section which will help you.
  • Then collect all of your receipts (the last two to three months to compare, if possible). With younger children, you may need to explain which are receipts for food, clothes, treats, unexpected bills, etc. You could also discuss which purchases are necessities (food, clothes, heat, light, rent or mortgage), and which items are extras, to buy when there are sufficient funds.
  • Look at the budget sheet sample by downloading Work Sheet WB3 , then help your son/daughter make the budget plan by listing all payments in during one month and then on the opposite column all payments out. You might find it helpful to look at the fact sheet relating to budgeting as you do this. (Explain that the three months' total for each item can be added, then divide by three to get the average monthly cost.) You could also discuss the impact of 'emergency costs' on the family budget.
  • If you have withdrawn cash, get these receipts together just to tally with your bank statements.
  • Be careful not to double-count cash machine receipts if you've withdrawn cash, (you have probably spent it on bits and bobs with no receipts, so it needs to go as an expenditure). You might have bought things for which you already have receipts. Don't frighten yourself or your child/children by counting this twice and leaving yourself with a big overspend!
  • But equally don't under-estimate what you need to spend each month. Always guess a larger not smaller amount. That way, you will always have cash left over (and not be overspent).
  • You need to divide any payments you make quarterly, or annually, to get an average monthly amount.
  • It will help your child/children to understand that there is a 'limit' to what you, their parents, can pay for and that everyone has to play their part in keeping the family moneywise.

Know the Facts: Saving and Debt

With so much of the country in debt, it's important to encourage children to save their money and avoid making decisions that could lead to them owing money.

  • Save for a 'rainy day' - This means saving money regularly so that you have enough money to cover you for unexpected or emergency expenses.
  • Pay off the most expensive debts first - If you have more than one debt, pay off the one that is costing you the most in additional payments (possibly the one with the highest interest rate) first. Speak with a financial advisor to see what you could do to reduce your debt.
  • Avoid buying on credit - Try to pay for things straight away and take the time to save up if you need to. If you use a credit card or store card, pay off the total balance so you escape paying interest as well. Cut down on your spending rather than using your overdraft. If necessary, get rid of your credit card so you're not tempted to use it.
  • Debts before spending - Use any extra income to pay off debts rather than spending on luxury items.
  • Find the best interest rates - Remember that you're looking for high rates on savings and low rates when borrowing or using credit cards. Also investigate the types of rates that are available.
  • Pay bills straight away - Avoid paying extra charges on late bills by paying them as soon as you
    receive them.
  • Learn from your mistakes - Managing money is a skill. It can take time to get good at it. If you make a decision that gets you into unnecessary debt, learn from the experience. Adjust your financial planning so that it doesn't happen again.