How to teach kids money skills for a brighter future
‘Wants are different from needs’ (Picture: Getty Images)
Teaching children about money when they’re young will help them to manage it better when they’re older – but parents are struggling to pass on financial lessons to their kids.
A study for the government’s Money And Pensions Service shows that children form money attitudes before they are 10-years-old. By the age of three, they can develop basic money concepts and by age seven many of their money habits, including the ability to plan and delay gratification, are already set.
A recent survey from Yorkshire Building Society shows that more than nine in 10 parents of school-age children think it is important for their kids to experience financial education, yet only a quarter talk to them about the subject once a week or more.
‘Parents recognise that financial education is incredibly important, but they are juggling many different priorities when it comes to talking to their children about life skills,’ says Chris Irwin, director of savings at Yorkshire Building Society.
So if you don’t know where to start, we’ve asked the experts about which lessons matter most.
Teach kids that needs and wants are different
Tanith Carey, parenting and psychology expert and author of What’s My Child Thinking? says that in today’s ‘tap-and-go society’, you need to introduce friction to slow down the payment process, otherwise children will use cards to buy items without thinking – creating a habit that will continue into adulthood.
‘When you buy something, talk to kids about the difference between a need and a want,’ Tanith tells Metro.
‘Explain that “needs” are everything you require to survive, like food and shelter, while “wants” are complementary add-ons which are nice to have but you can live without them.’
Saving isn’t punishment, it is freedom
Lesley Thomas, author of bestseller Parents, Let’s Talk Money, says teaching children that saving isn’t a chore is a vital thing to do.
‘Position saving as something that creates choices,’ she says.
‘Set up a savings jar or account for something they want – for example a toy, game or a day out – and celebrate each small milestone with them to reinforce the positive feeling of saving.’
Change the stigma around saving, making it a positive habit is key to building good financial practices (Picture: Getty Images)
How a salary works
Tanith says children need to learn that most of us get a fixed amount of money regularly.
‘Just like in the real world, tell your children you will pay them a fixed allowance on the same day each week, just like a wage, and it’s their responsibility how they spend it.
‘By trial and error, this will teach them the value of money and help them to understand that it’s not an unlimited resource.’
Lesley says that if you can let children make small financial mistakes in a safe place, it will help them to get better with money over time. ‘If they spend all their money quickly and regret it, don’t bail them out immediately,’ she suggests.
‘Instead, discuss what they might do differently next time, framing it as a learning moment.’
What happens as money grows
Compounding – the way money grows over time – is a vital lesson for children, says money blogger Francesca Henry, who writes as The Money Fox.
‘It is important because it can either work in your favour or against you. It can work in your favour, for example,with investing, where you can put in an amount of money and it keeps earning money for you,’ she says.
‘It can harm you with debt, where the interest keeps accruing and you then have to pay back more than you initially borrowed.’
You shouldn’t spend everything at once
Ivana Poku, parenting podcaster and mother of three, says she teaches her children to save with the 50% rule. ‘One of the first things we started teaching ours is that they can’t spend more than 50% of what they have,’ she says.
‘So, if they want to buy something, they need to have double the amount [it costs] in their account. It’s a great money management tool.’
Talking about finances openly teaches children that everyone has to practice money management (Picture: Getty Images)
Parents have to make spending choices, too
If you don’t teach your children that you are making decisions over your spending, they won’t learn about choices, suggests Tanith.
‘Parents often like to feel as if they are all-powerful providers. This leads children to believe we have an unlimited amount we can spend however we want – and one day they’ll be able to do the same,’ she says. ‘To help them think responsibly, calmly share some of your own money management decisions.
‘When you’re out shopping, chat through your choices and don’t be afraid to show them how your purchases affect your bank balance, so they learn basic cause and effect.’
Why I believe financial education should be mandatory in all schools
Chris Irwin, Director of Savings, Yorkshire Building Society, shares his view:
Research suggests that money habits are usually formed by the age of seven, but in England, financial education is currently not on the National Curriculum for primary schools.
To support recent calls for financial education to be made mandatory in primary schools in England, and to improve the depth and provision of financial education available to older pupils, Yorkshire Building Society (YBS) has submitted evidence to the Curriculum And Assessment Review.
The government-led review is aiming to refresh the curriculum and assessment system for five to 19-year-olds, to make sure they meet the needs of every young person.
After the review, all state schools – including academies, who currently do not have to follow the National Curriculum – will be required to follow the National Curriculum up to age 16.
So why is a building society getting involved? Because the consequences of not educating our younger generations could be felt for decades to come.
Recent research into the financial resilience of young people has highlighted that almost two-fifths of young people don’t have the confidence to make important financial decisions, and less than half recall ever receiving any formal financial education at school. This is despite it being on the National Curriculum for ten years.
We also found that most young people rely on their family to learn about money, meaning those from less financially savvy families are likely to be at a disadvantage.
Delivering financial education consistently in schools, from a younger age, and in a way that helps people have the knowledge to deal with real-life challenges, will help more people have a good start in life, and face the future and its challenges with confidence and optimism.
Our recommendations include:
- Making financial education a compulsory part of the National Curriculum within every stage of education. This would mean giving access to all primary school children, and also ensuring young people continue learning about finances after 16, to prepare them for work, life, and further education.
- Treating financial education with a ‘little and often’ approach, especially in the early years, helping children to understand the concept of money and develop healthy attitudes towards it.
- Since the last major curriculum review, the way in which people use and interact with money has been transformed via new technologies, while the potential for financial abuse has grown and diversified. The new curriculum must reflect the financial world children are growing up in.
- As at primary age, financial education at secondary school can be effective when it is delivered cross-subject through a coherent curriculum that links together different aspects of financial education.
We believe support from external providers can help already-stretched teachers deliver a better co-ordinated approach, bringing together voices from across the financial services sector.
If we get this right, all our young people will enter adulthood feeling confident about their knowledge of finances, and more optimistic about their future.
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