Getting to know financial terms: a child-friendly guide on tax, investments and budget

Wrapping your head around financial terms and technicalities can be tricky for everyone, not least children who may be new to learning about money and finances.

With lots of jargon and complicated terms out there, which they might be coming across on social media or in the news, learning about finance can almost be like learning another language! If you want to help introduce your children to some key financial phrases, we’re here to help.  We’ve outlined a few frequently used terms, so your children are clued up the next time they come across them.

Tax

The word tax is almost always in the news – but what does it mean exactly? Although there are many different forms of tax, the concept remains the same for most of them; tax is there to fund the services we all use.

Put simply, tax is a portion of money collected by the Government to help pay for the running of the country. The amount of tax everyone pays is usually based on how much money they earn, where they live, or how valuable their home is, but there are lots of other factors and types of tax that affect how much each person pays.

In pocket money terms, paying tax would be a bit like your children paying you a small amount of money each week or month, which would then be put in a pot to be saved for a special item or purchase in the future.

Investment

Talk of investments can frequently be found on social media, but it’s particularly important for children to understand exactly what they are.

In some aspects, investment is a little bit like saving – but involves buying something of value, which could be sold on in the future. Usually, people invest into something, such as a house, or a company, with the hope of being able to make more money further down the line. However, it is important that children understand investments can be risky, and it’s not always guaranteed that investors make a profit off the money they put in. 

Budget

Particularly important in the current economic climate, your children may have heard you discussing ways to adjust and stick to your monthly budget.

If they’re unsure of what a budget means exactly, the best way to describe it is the total amount of money that is allocated for spending in a certain timeframe – this could be weekly, monthly, or even annually! Or, it might be that you have a budget allocated for a certain event, such as a holiday or a shopping trip.

Just like you, children can practice managing their own monthly budget with their pocket money. Why not sit down with them at the beginning of the month and decide how much they will spend on certain things, whether that is for buying clothes, gaming or going out with friends – the split will be different for each child. If they stick to their budget each month, you could reward them with an extra top-up in their nimbl account, or take them out for a meal to reap the benefits of their efforts that month. They’ll also soon become familiar with the importance of not spending all of their budget in one go!

We hope this provides some useful and doable ways to teach your children about some financial terms by putting them into practice. We’d love to hear from you if there are any other terms you’ve had to teach your children – drop us a message on Facebook, Twitter or Instagram.

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