Children are never too young to learn about money. In fact, children as young as two or three can understand simple money problems, and research by Cambridge University suggests they have formed financial habits by the age of seven! Starting early can save a lot of later life mistakes, so read on to discover the money lessons you absolutely must teach your children.

We work for our money, and the bank simply holds it for us. If we don’t explain to kids what money actually is, they’ll grow up thinking that they can just get more and more of it from the bank! It might be a tricky one to explain though, so giving pocket money for chores and teaching kids to keep it in a piggy bank might be a good way to start.

When mom and dad are seen to always have cash or coins in their pockets, children don’t understand that money isn’t infinite. Give a child small amounts of pocket money, and don’t supplement it if they spend it all. That way they will understand that you CAN run out of cash.

Explain what taxes are to your children in gentle terms, but as they get older make sure they understand the cause and effect relationship between paying tax and their education, healthcare, etc. As they get older make sure they understand that taxes are important and that they will have to pay them correctly as adults.

Small children obviously don’t need to know how to complete a tax return, but teenagers do! As they get older and start earning their own money from after school jobs go through their payslips, explain how tax is worked out and what they paid. Teach them to complete tax returns properly and on time by showing how you do yours. They may not want to at the time, but they will thank you endlessly as adults!

Small children should already have learned that money doesn’t grow on trees – so young teenagers should be prepared to budget their pocket money for their expenses and desires. Try giving children their bus money combined with pocket money, that way they can learn to budget or they can walk home from school!

Your kid wants a new toy, but their pocket money doesn’t stretch that far. Instead of buying it for them, take the opportunity to teach them about saving. Make sure it’s not so expensive though, as if it takes months to save for they might give up in frustration. Help them keep track of their money and, when they have enough, take them to the shop and let them pay for it themselves. They will never forget the feeling of achieving their goal and how good the reward was!

Most parents and grandparents contribute to a savings account for their children. While it is important to help children save for big expenses in adulthood (like college, a mortgage or even a pension), paying directly into a savings account won’t help them learn. Try giving children a larger amount of pocket money each time, and teach them how to squirrel 10% away in their account. There are many brilliant savings accounts and apps for kids, like goHenry.

When your child has learned to save for something he or she really wants and has reached their savings goal, do some research with them on where they might be able to get the best price for their item. Show them how to search online for the best price, and compare a few shops (when possible) before making the purchase. When your child determines the best price through research, they will feel the joy of finding a good deal.

Beth Kobliner, author of the New York Times bestseller Get a Financial Life, suggests getting children to divide their pocket money into three jars: Spending, Savings, and Sharing. Spending is for everyday things like sweets or snacks. Savings is for bigger toys or treats. Sharing is to spend helping their friends, a charity they might like or giving it to someone who needs it. Generosity is as important a lesson to learn as responsibility.

Even adults struggle with the notion of compound interest. The good news is that the brilliant ThreeJars Allowance Calculator will help you both understand the term, and then help you explain it to your kid. And when you're both saving appropriately, everybody’s happy.

This can be tricky for everyone, but ultimately will determine how successful you’ll be with your money as an adult. “When we go into a store, if I say, ‘We don’t have money for this,’ they’re smart — they know we have credit cards,” Kobliner told Forbes about her family. “We’re here to buy a gift for X, and we’re not going to buy anything for you, because we’re not here for that.” Kobliner says this teaches kids that going into a store will not necessarily mean buying something.

The supermarket is a great place for money lessons. Explain to your child why you might be buying a generic brand of cookies rather than a well-known one because it’s cheaper and tastes the same, for example. Then give a child some money and ask them to pick out a product with similar parameters: it must be within the budget, and a sensible choice.

If your electric drill or dishwasher breaks, use it as an opportunity to discuss big spending with a child. Ask questions like “can I afford it?”, “do I really need it?” or “can I borrow it?”. If you decide to buy, then involve the child in the decision by asking questions like “is this brand cheaper or better?” and “can I buy this cheaper somewhere else?”. Eventually when it comes to their turn to buy a car or dishwasher as an adult, they will know the right questions to ask.

College applications are great to talk about debt. By the age of 13 you can start discussing the cost of education with kids. Explain the student loan process, and what it will mean for their finances after university. Go through brochures together, discussing all the costs of going to college, including cost of living away from home, travel, food, etc. Ask your child to make a list of priorities – and if they choose to work towards a scholarship, they'll have enough time to prepare.

Children can see parents and grandparents paying for treats and shopping with their credit cards and assume it’s an easy way to buy what they want. But they should understand the implications of credit, and be taught to always pay their balance in full. Most importantly, children and teenagers should be made aware of the difference between credit and debt in order to avoid bad decisions later in life.

A little bit of cynicism can go a long when making financial decisions. By encouraging children to reflect on the true value of their purchases and experiences by pointing out sales tricks and phone advertising, they can learn that companies are not always their friends – and to ask the right questions before parting with their cash. Just avoid the conspiracy theories.

The supermarket is rife with learning opportunities. Take your children with you and point out deals and sales, such as ���buy one get one free” or twin-packs. Discuss how much the unit price is, if the deal is really cheaper, and if it is, do you need it or is it an impulse purchase driven by a saving. When buying bigger items, like a washing machine or car, discuss the advantages and disadvantages of paying outright or in instalments – and whether flexibility outweighs price in each purchase.

A piggy bank is a great tool for learning how to save and encouraging children to think about money – the trouble is you don’t know how much you have in there until you crack it open. Get a savings jar for your kid, encourage them to count what’s in there and be aware of what money they have available. That will teach them to stay on top of their balance – a good habit they will hopefully carry into adulthood.

Few children relish being told to take out the bins or clean their room, but if children make a small amount of pocket money by doing chores they will learn the value of work and therefore what their time is worth. However, children should know what their obligations are (such as homework) and that these must be fulfilled before they can start earning money through chores.

Perhaps the most important tool for parents and grandparents trying to educate their children about money and personal finance is open dialogue. Frankly discuss money with children in terms they will understand, but don’t make it a taboo subject. Children should feel confident about asking questions and discussing money with parents; this will foster a healthy, frank relationship with their own personal finances.