Beating pester power

A recent study has revealed that the cost of raising a child has risen 33% over the last five years to £186,000. With this figure set to rocket by 42% by 2012.

We're all familiar with the "I want", "I need", and "everybody else has…" phrases that tumble out of children's mouths and it's often easy to cave in. However, while this might give you some peace, it's bad for your finances - and for your child.

"Giving kids everything they ask for means they'll always have a childlike approach to money," explains Phillip Hodson, fellow at the British Association of Counselling and Psychotherapy. "The effects of this may not be apparent until later in life, when they’ve stacked up debts because they can't budget."

Start early

Philip Pearson, independent financial adviser at P&P Invest in Southampton, is already introducing the concept of money to his three-year-old son, Magnus. "We acknowledge simple things, like taking his shoes off when he comes in, by rewarding him with chocolate coins. It's important they learn the idea of earning things of value by doing regular, simple tasks." It's important to introduce consistency and routine into children's lives too, says Hodson. "Children respond surprisingly well to boundaries and rules, if introduced early, which helps them understand financial limitations later on."

This is all very well in the early years, but it's when your kids start regularly interacting with other children - often from different financial backgrounds to your own - that 'pester power' really kicks in. Hodson suggests repeating the phrase, "different families, different rules", when faced with the "everybody else has…" demands. "But be careful not to make your child a victim by being too different from their peers; we all need friends in the playground."

Peer pressure

Along with advertising, peer pressure is always going to lead children to ask for things, but instead of just saying "no", Pearson recommends talking through with your child why they want something and how they can go about getting it. "Discuss the idea of saving up for it - or at least making a contribution. If they want something badly enough, they will do it. If not, then they can't have wanted it that much in the first place."

Hodson recommends asking lots of questions about what it is your child wants. "Get them to sell it to you, then say what you're prepared to contribute," he says. "For example, if they want something costing £50 in a month's time, say: 'Right, this is my offer - we'll stump up £20, how are you going to get the rest?'" The key is keeping it fun, while teaching them that we can't always have what we want.

Pocket money

"Pocket money should be earned: I don't believe in money for nothing at any age," says Hodson. Designate jobs in the form of household chores. "Don't be too critical if they aren't done perfectly," says Pearson. "Praise is needed in order to encourage. Keep tasks simple and fun."

Also, sit down with your child each week to count the money from their piggy bank so they can watch it accumulate. "With young children, it's best to keep the saving period from when they first want something to when they get it no longer than three or four weeks, so they don't lose interest," says Pearson.

Terrible teens

Whether it's credit for a mobile, the latest gadget or new clothes, teenagers are desperate to fit in with their friends. When you're 14, missing out on something can seem like the end of the world, so just saying "no" will only result in arguments and resentment. "Times change so much, and it can be hard to understand where your child’s money goes," says Hodson. He advises talking to them about what they need the money for, how much these things cost, and how they are going to help pay for them.

Pearson adds: "It's a cheap shot, but academic rewards often help at this stage, with SATs, mocks and actual GCSEs. Financial rewards really do incentivise kids to work hard at school."

When your child reaches 16, a part-time job is a sensible option and will not just earn them extra money; it will introduce them to the world of work and teach them the importance of timekeeping and how to interact with colleagues and customers. "Once your child has a regular income, get them to draw up a budget each pay day," says Pearson. "It's surprising how protective children get over their money when they've gone out and earned it themselves."

If, for any reason, you lend money to your child, distinguish the difference between giving and lending. "It may sound harsh, but it's an important lesson. Work out a repayment plan - say, a few pounds a week. And if you really want them to learn, introduce the idea of interest," says Hodson.

Fleeing the nest

The best of intentions can go awry when they go to university and start living away from home. Assuming course fees and accommodation are taken care of by a student loan, it's the day-to-day living (or partying) that can get out of hand. "Be open to negotiation on what your child feels they need to get by, but don't put yourself under financial strain," says Hodson. It's surprising how many courses leave enough time for part-time work. But also remember struggling to get by is all part of the student experience - living on beans on toast for a while won't do them any harm.

Jane Furnival, from BBC 3’s Spendaholics and author of Smart Spending, shares her tips:

  • Teach young children to recognise different coins by playing shop games with real money. Eventually, they will learn that once it's spent, it's gone.
  • Teach them to be critical of what they see and hear. Discuss adverts with them and teach them to look under the surface of the glossy advertising sell on TV and in newspapers.
  • Don’t encourage the effects of merchandising by kitting out your child's bedroom in a theme like Thomas the Tank Engine or Bratz - you will only have to do it again when they move on to the next obsession.
  • If you are brave enough, when a child has a tantrum in a shop, just have one back: "Yes it's awful isn't it? I just WON’T buy it for you." That stops them, as it's embarrassing, and they may resort to dragging you out or offering a treat to shut you up.

Moneywise is campaigning for personal finance to be included on the National Curriculum. You can show your support by signing our petition on the Prime Minister's website.

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