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The tooth fairy: the first step on the road to savings

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The tooth fairy is getting stingier over time though she still leaves an average of £3.34 per tooth. But this is down from £5.76 from their parents’ day.

The research from Halifax puts the size of the tooth fairy industry at a chunky £450m, with each child receiving an average of £66.80 once they’ve lost all of their 20 milk teeth. Over one in 10 (12%) children get at least £5 per tooth, or £100 for all of their milk teeth.

The relative generosity of the tooth fairy depends on the region – children in Greater London get almost double the cash compared to those in the North West of England, at £4.84 vs £2.65 per tooth.

The tooth fairy is an important starting point for teaching children about money. Giles Martin, head of savings at Halifax, said: “Two thirds of children save the money they get from the tooth fairy, either in a piggy bank or a savings account. Just like regular pocket money, it’s a great opportunity to get kids into the savings habit from a young age.”

Parents increasingly recognise the value of teaching their children about money from an early age. The most recent Childwise Monitor report found boys between five and 16 receive £10.70 a week, while girls of the same age receive £8.50 – 20% less, an early lesson in the gender pay gap. Pocket money varies considerably with age. Five to 10 year-olds are given an average of £7.30, rising to £22.90 for 11 to 16 year-olds.

Starting early

Starting your children early will help develop their aptitude with money. Money Advice Service research shows a child’s money habits have largely formed by the age of seven. Experts suggest starting by setting a child a short-term savings goal, such as buying a toy.

Later, you can educate your child by talking about how you make financial choices – in the supermarket, for example, you can talk about why you buy one type of milk over another type. You can also give them small amounts with which they can make their own spending decisions. Teaching them to budget gives them another useful skill. Encouraging them to write down what they spend so they know exactly where their money goes will get them in good habits.

Most suggest that children aren’t ready to learn about the merits of compound interest until a little later – perhaps 10 onwards. With this, it is important to teach them that the sooner you save, the faster your money can grow from compound interest. This is harder in a low interest rate environment, but it is still possible to find children’s regular savings accounts paying 4% .

Although it sounds a little risky, children will often be saving for the longer-term and it can be worth looking at stock market investment for them. Investment trusts are a good entry level investment. They are low cost – many of the largest trusts have an annual management fee of less than 0.5% – and are usually available with a relatively low minimum investment level – often as little as £50 per quarter. It may be worth considering trusts such as Witan, City of London, Scottish Mortgage or Lowland, which have good long-term track records.

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