Educating children about money and financial responsibility
2014 saw the introduction of financial education into England’s secondary school curriculum. The Money Charity found that as of 2016, 90% of schools were delivering this education — but what about the quality? Examining this and providing some tips for parents teaching their children about financial responsibility is True Potential Investor, an investment specialist and personal pension provider.
Educating young people about money: an overall view
According to The Money Charity’s survey, 66% of teachers described the financial education delivered in schools as somewhat or very ineffective. In fact, three out of five teachers said the curriculum change had no impact and worryingly, a third of teachers didn’t know financial education was on the curriculum.
There are a number of reasons cited for this outlook, whether it’s ineffective or little training for teachers or other subjects within the curriculum taking priority.
So why is financial education amongst young people important? Research from The Money Advice Service has found that children aged 12 to 17 whose parents made their spending decisions for them were more likely to spend unnecessarily and have poorer money management skills.
Of course, parents have a role to play in ensuring their children receive the financial education they need. 80% of parents believe it is their responsibility to teach their children about finances — yet one in six don’t feel confident doing so. Here are some tips for supporting your child’s financial education at every stage:
In early life
Scarily, financial attitudes are decided by your child’s seventh birthday, according to The Money Advice Service research. It’s important that you start talking to them about money and what it means early.
- Let your child count out the coins when you are buying something. Doing so can help them not only get used to handling and counting money, but also improve their numeracy skills.
- Give your child the cash and let them pay the staff member. This will help educate them about the exchange transaction.
- Use play to make teaching your child fun. Many children will like to play shop, which will again help them better understand money and value while still remaining fun.
Explain what’s essential and what’s non-essential
Your child may not instinctively understand want vs. need — and few understand the cost of what they may be asking you for.
- You don’t always have to give in and buy them what they’re asking for. Encouraging your child to save up for something they want rather than you buying it for them will help your child understand the value of money and delayed gratification.
- Use a real-life example to explain the scale of the cost to older children. For example, is a £300 games console enough to cover the family’s monthly food shop? This perspective can help children realise the difference between what they want and what they need, and realise that they can’t always have everything.
Setting and achieving savings goals
As well as influencing their spending habits, it’s important to teach your children about saving too. If they start saving towards a games console or other item, encourage them to budget with the money they have. This is applicable whatever the age of your child, whether they’re dealing with pocket money or wages from their first job.
- You might want to encourage your child to divide their cash between spending, saving and donating. Giving them three jars or piggy banks is probably one of the easiest ways of doing so, so they can see a clear divide in their money. For older children, this can be done through having a separate current account to their savings account, while you may want to give younger children their pocket money in lower denominations so it can be easily split.
Skills for later life
As they move onto college and university, become financially responsible can be a shock to the system for some. As a parent, you’ll need to prepare them the best way you can:
- Accept that making mistakes is inevitable. As they get their first job and start earning money for themselves, they may be tempted to splurge with their first wage, leaving them short for the rest of the week or month. You can disagree with their purchases, but try not to be too controlling over how they spend their cash. Eventually, when they’re tired of being skint for the majority of the month, they’ll realise the importance of budgeting and will consider a purchase more before buying it.
- Support your child’s work and encourage them to stick at it. Earning on their own is one of the best ways to understand the value of money.
- Equip them with the skills they need to remain financially responsible at university, when the time comes. When the student budget is limited, it’s very easy to turn to credit cards with a high APR. Make sure they understand the options available to them as a student and encourage them to choose the best ones.
Don’t forget about the positive impact leading by example can have. True Potential Investor’s parent company, True Potential LLP, has partnered with the Open University to establish the True Potential Centre for the Public Understanding of Finance, establishing three free personal finance courses to help improve financial confidence across the UK.