In an era dominated by contactless payments and digital wallets, the classic piggy bank is becoming a relic. Yet, the fundamental lesson it represents – cultivating sound financial habits from a young age – is more critical than ever, according to leading money experts.
Building Lifelong Money Habits from Preschool
Jackie Spencer, the senior policy and propositions manager at the Money and Pensions Service (MaPS), emphasises that the journey to financial literacy should begin remarkably early. Research from MaPS indicates that children can start forming money habits from the age of three. "Even putting aside a small amount can make a big difference," Spencer states. "It's about more than just saving; it's about teaching lifelong habits."
She recommends embedding saving into a simple routine. For instance, if a child receives £2 in pocket money, parents could encourage putting £1 into savings while allowing them to spend the other pound. This simple act opens the door to essential conversations. "This gives you that opportunity to talk about money with your kids and what things cost," Spencer explains. "That can lead to other conversations about budgeting and shopping."
With the shift towards a cashless society, where money is often an abstract concept, these discussions are vital. "You tap your card, you're rarely paying with cash... so it's even more important to talk about money, because money can be much more ethereal," she adds.
Top Savings and Investment Options for Children
Parents have several robust vehicles to help grow their child's future funds. Spencer outlines three primary options, each serving a different timescale.
1. Children’s Savings Accounts: These operate like standard savings accounts but are held in a child's name. They are perfect for short-term goals and teaching youngsters how to manage their own pocket money.
2. Junior ISAs: A powerful medium-term option, these accounts allow for tax-free savings of up to £9,000 per year. The funds legally belong to the child and become accessible when they turn 18, providing a potential nest egg for university expenses or a first home.
3. Child Pensions: For truly long-term planning, parents can start a pension for a child, even a baby. Up to £2,880 can be saved annually, with the Government adding a £720 top-up. "So the contribution per year into the pension maximum is £3,600. That will also grow tax-free," says Spencer, highlighting the power of compound interest. However, she notes the money is locked in until the child reaches pension age, which is currently 55 but rising to 57.
Spencer also mentions Premium Bonds as a fun, chance-based alternative, though she cautions they lack the guaranteed returns of the other options.
The Real-World Lesson of Choice and Consequence
Beyond the mechanics of saving, Spencer stresses the importance of letting children experience the natural outcomes of their financial decisions. If one child saves and another spends, she advises against equalising the situation. "Let them see the difference... It teaches real-world lessons about trade-offs and priorities," she says.
The overarching message is unambiguous: whether it's pocket money in a savings account or contributions to a pension, it is never too early – and no amount is too small – to start building a foundation of financial sense for the next generation.
