LAURA: Welcome back to the Pension Confident Podcast with me, Laura Miller, standing in for Philippa Lamb. This month, research shows that money habits are set by the time children are just nine. So how do you make your kids good with money? Keep listening.
LAURA: According to the Money and Pensions Service, almost 40% of adults in the UK don’t feel confident managing their money. That’s huge. Two in five adults are lacking confidence when it comes to their finances. And yet, we’re expected to be financially literate and confident enough to make the right decisions with money; from picking a suitable savings account to choosing when you can afford to retire and all the milestones in between. So, when and how should we start learning about money? We’ve got two guests to help answer these questions. Will Carmichael is the Co-Founder and Chief Executive Officer of NatWest Rooster Money, which uses digital tech to empower kids with an understanding of money. Welcome to the show, Will.
WILL: Thanks for having me on.
LAURA: And next up, we have Emma Maslin. She’s a certified money coach and mentor and founder of The Money Whisperer, an award-winning website that attempts to equip its readers with the right money mindset. So lovely to have you here, Emma.
LAURA: Now for the usual disclaimer, anything discussed on this podcast should not be regarded as financial advice and remember when investing, your capital is at risk.
How should we teach children about money?
LAURA: Before we jump in, I’ve got a question for our panel. What one nugget of wisdom about money were you not taught but wish you had been, Emma?
EMMA: Oh, I think compound interest has to be the thing that if we were teaching our young people this, we would be in a situation where lots more people would be able to enjoy their later life.
LAURA: Just explain what compound interest is.
EMMA: Compound interest is where your interest earns interest on itself. So, if we leave our money in the bank and allow it to grow with the power of interest, leave the money that’s there to continue to grow. It acts sort of like a snowball effect. Now, we live in a society where we’re encouraged to consume, consume, consume. So we end up not leaving our money in the bank to do this. If we could encourage and educate children to do this, and certainly if I’d have learnt that when I was younger and not spent so much on going out, and handbags, and shoes, I think I’d be in a better position now.
WILL: Well, I’d say Emma’s definitely taken my top one, which is compound interest. I think actually, the fundamental one is talking about money. It is the biggest lesson of all. A lot of people’s first conversation is a negative one. And I think that, that journey of actually starting early and talking about it is the best place. It’s where everything starts.
LAURA: Okay well, from my side I think that I wish I’d been told that credit card interest rates were the price of borrowing that money. I think if it had been framed in that way, that there is a cost to being given this supposedly ‘free looking’ money, then I probably would have gotten into less debt at university. So, who’s responsible for teaching our kids about money? Parents are already juggling so much, surely it’s unfair to ask them to fit teaching their kids about money in, too? Emma?
EMMA: Well you already alluded to the fact that actually children are like little sponges and are building those habits, and those behaviours, and those attitudes toward money in those really early formative years before they are about seven years old. So, if you think, ‘who are the primary caregivers at that time?’ It’s the parents. So, whether we like it or not, as parents, we have a primary role in this period of our children’s life to really make a difference. That being said, you know, there’s obviously a role to play within education settings as well. But I think we really need to be cognisant that those early years are when all the foundations are really set. And certainly in my role as a financial coach, where I see people who are struggling with money as adults, when we kind of trace it back to some of those messages that they were given when they were younger. They are things that happened to them when they were very, very young. So parents out there, we do need you to equip yourselves to be in a position to start having those meaningful money conversations. And if you don’t feel confident in doing that, really advocating to get more and better education in our school settings.
LAURA: So this is the pocket money conversation, surely? That’s the first time that most children will interact with money, or maybe they’ll get £20 in a birthday card sent to them. How does that conversation go with your children?
EMMA: In my family? I have two children, two girls, 8 and 10. And they are very, very different already. So I find the whole psychology of money really, really interesting because outwardly we’ve taught them the same. We give them the same opportunities and yet I have a real saver, and I have one who’s a lot more balanced. She’s happy to save some and spend some. So it needs to be tailored to the individual child as well. But certainly in our house, we encourage the girls to have different pots for different things that they might want. So we have some money saved for things that they want in the future. So we’re teaching them that really important concept of delayed gratification, but also balancing that with the healthiness of understanding that, you know, there are things that they might want and need right now. And it’s perfectly okay to go out and spend the money.
LAURA: My nephew is currently saving up for a laptop, and he will do anything, any jobs that are all £5, whether it’s cleaning your car or removing a kidney, it’ll be a £5 job, and Alex will be on board to do it. So look, this is a really interesting point about pocket money. Do either of you think that the responsibility lies elsewhere however? So,financial education is taught in school, but not until secondary and given that, as we’ve already discovered from the research, habits are set by as young as nine, why is that not being offered earlier? Will?
WILL: It’s a really good question. I think a piece of research came out at the end of last year saying about 8% of financial education is delivered within schools. Obviously, it is taught in secondary but in primary, it’s very much left to being part of other subjects. You’re dealing with coins in your maths lessons. That’s what my five year old is doing. So there are lots of organisations working into schools. So you know, a number of charities like NatWest which Rooster Money is part of, Money Sense has been going for 25 years. But those are, you know, parties inputting into those school environments, but it’s not within the curriculum.
LAURA: Is it something that we should be talking about in terms of even as young as nine, things like pensions and stock markets? Is that something that could be introduced in an easily digestible way into the conversation about how you can save money and invest money with this sort of idea of a future self?
WILL: Money needs to be contextual. What you’re shown on a blackboard has to be relevant, right? Very much like you stand by the side of the road to teach your kids to cross the road. You can talk about it in the school, you can talk about road safety, and then you have to go and act on that. So it’s this joint relationship between teachers, parents, and actually, I think there are many more touch points beyond that. I think, you know, what the government needs to do to educate people about how tax is used, and to talk about how budgets work. And that’s, you know, for us as adults, right as well. And that filters all the way down into the school environment, into the home - grandparents are amazing initiators. About 14 - 16% of pocket money usually is given by a grandparent. Those extra fivers that we’ve talked about, that’s a great talking point. So I like to think of it a bit like an advertising campaign, multiple touch points, you see it on TV, you hear it on radio, you see it on a billboard, you open a magazine. And that’s what we need to do with building financial capability. It’s working across a whole programme with lots of different people.
LAURA: And it’s interesting, the language that you use there, sort of capability and this confidence with money, because there was new guidance launched last year in November to help schools improve children’s money skills. And the way that it’s being framed and being discussed is in terms of financial well-being. It’s actually almost a piece of health education. Is this something that, you know, that’s the way that it should be taught as part of almost health education?
EMMA: 100%. Because I think certainly with the adults that I deal with, where financial well-being is suffering, it has a ripple effect on the rest of their life. If you’re not financially capable, to eat well, to exercise well, if it’s causing you anxiety that’s disabling proper sleep. All of these things have a huge impact on your general well-being. So financial well-being is crucial to all of those other things. Now, if we can teach children the basic building blocks of good money habits and effective money management, we’re enabling that financial resilience in them as adults, and it’s so, so important.
LAURA: What’s tricky is that not all parents know the ins and outs of finance themselves. So if you’re not financially confident, how do you teach your children to be?
EMMA: It’s great just to put your hand up and say to your children, ‘Do you know what? Mummy and Daddy didn’t learn about this at school. What a great opportunity you’ve got to learn this stuff. And actually, do you know what? I’m going to learn it with you and I’m going to put my hands up and say that I’ve made some mistakes, and I don’t want you to make those mistakes’, because actually, so many adults learn on the job. We teach our young children X, Y, and Z at school, and then we throw them out the door into adulthood at 18 where they’re faced with letters from the bank that offer them credit cards with no teaching around what that actually really means for them to take on that credit card and the potential life implications if they get that wrong.
LAURA: And Will, Rooster Money has star charts, virtual money trackers, chore managers, those are the kinds of things that parents need, aren’t they?
WILL: It’s a practical app designed really to create a framework around some of these things to initiate positive conversations about money. But I think, you know, just to go back a little bit, research came out actually through the Money and Pension Service, which showed that in sort of what they called interventions, as far as research, where parents were engaging to talk to their kids about money, it changed the way they acted and thought about money. And I think that’s the positive outcome. You say, ‘Let’s do it together. Let’s research what the right product is. Let’s go and find out which the best savings product is and what the pros and cons of that are’. We understand that everyone has different stages. So the focus of the app really is to start, if you’re three or four, you can start with a star chart. And you can then activate a tracker where you can start getting your kids to think about saving towards goals, splitting money into pots. You can have conversations about earning money, and then at the right point, you can activate a Visa debit card. So it’s about a learning journey. It’s about keeping parents involved too. It’s letting grandparents contribute, but also importantly empowering kids to make decisions themselves. And I think we’ve probably all seen or been part of one of the scenes in a supermarket where your child wants to get a magazine with a plastic toy on the front. You know, they didn’t really want the magazine and you have that discussion about how you’ve bought them multiple ones. It’s another fiver. Well, flip that. Have a conversation about ‘Okay, how much have you got? Do you really want to get this? And, you know, if you do, it’ll put you further away from your Lego Deathstar or pair of trainers’. But you’re empowering them to make that decision, and you’re still having a conversation about it.
LAURA: I mean, I think as we’ve touched on – the thing with money is the problems our parents had aren’t the problems that we’re facing now. Or even the problems that the next generation will face. It feels like high street banks may be becoming part of history and now we’ve got the expansion of the finance industry. So what’s the impact on consumer behaviour with all these FinTechs and challenger banks popping up? Will, seems like one for you?
WILL: I think, yeah, interesting. So I think it’s no longer just paying in cash. We don’t use cheques, really. I’ve still got a chequebook but haven’t had a reason to use it for quite some time. You can pay on your watch, you can tap. We’re now dealing in multi-currencies.
LAURA: So, there’s a kind of double-edged sword there, right? So we’ve got this frictionless money, is there a danger that to children growing up as digital natives now, money doesn’t seem real? It’s almost like currency on a computer game and so it’s much easier to spend, much easier to get into debt?
EMMA: I think both of these things need to happen in parallel, because we still do have cash. So our younger children are still learning how to count coins and how to manage change. And actually, I went on a school trip as a helper last week and it was really interesting. They had to bring cash. So I was sort of helping say, ‘No, you’ve spent more than your £10 allowance, which one of these things are going to have to go back?’ And that’s really important, but also, my children are 8 and 10, they’re going to grow up into a world where they probably won’t interact with cash as adults, I very much believe. So we have to be teaching them how to interact in a digital way. And that’s really important, allowing them to do that in a way where they can make mistakes.
WILL: That same technology, which perhaps is making money a little less tangible, physically, that is easier and more frictionless so therefore easier to spend. That technology is also an amazing opportunity for us to – I remember the point when, like on First Direct, I got a text at the end of the month to tell me what my balance was. And I was like, ‘Wow’. And then you know, we get push notifications on every transaction now. Some players out there are now offering breakdowns of your budget. So, there are lots of opportunities to bring, I guess, the payment meta and your finances to life.
EMMA: But personally, my experience as a parent of these apps is that they’re so great, because the interface that sits behind the spending, the spending is only one part of the transaction. So the app that sits behind enables you to see how much money you’ve got left, what you’re choosing to do with that money. And also, you can do things like really inflate and exaggerate some of the learnings that we have as adults. So, when my children started putting money away, I gave them a 20% interest rate on all their money that they kept aside.
LAURA: I’d like to bank with your bank.
EMMA: Exactly. I mean, hugely inflated. But it teaches a child that, you know, if you don’t spend it all, it grows.
How is the finance sector evolving for kids?
LAURA: Do you both teach your children about debt as well as saving?
WILL: Yeah, an interesting one. My two children are a little bit younger, so five, and three. So, we’re sort of coming out of star charts and going into early pocket money. We’re at the point where when it’s gone, it’s gone and if you want it, you’ve got to save up for it. I think that debt piece, what we see through customers on Rooster is that particularly with our tracking tool, which is, you don’t make actual deposits, we just, we act as a kind of I.O.U basically for them to go out and get something, and then some of those parents go, ‘Okay, you need to pay me back for that’. Now, they don’t apply a reverse interest rate on that. But you know, it’s that opportunity to have a conversation going, ‘Okay, if you really want to get that upfront, I’ll cover that, but you’re going to pay me back for it.’
LAURA: At £1 a week, or whatever it is. My five year old niece has an iPad, and knows how to use it. So, I’m sure she would be a prime candidate for a money app as soon as my brother gets one for her. Because they already know how to use the tools, they just need direction.
EMMA: They do. And you actually make a really interesting point, because actually, you can’t set up a bank account with your own debit card until you’re 11 years old. So, a lot of these apps allow children from about six to get involved. So yes, children are interested and we shouldn’t be squashing that enthusiasm to learn about money.
LAURA: Okay, so we’ve got these apps, but what financial products are there actually for kids? So, there’s no kid’s mortgages or kid’s pensions are there?
EMMA: Kid’s pensions, yep. I have set one up.
LAURA: Tell me about kid’s pensions.
EMMA: I am a big advocate for teaching women, particularly, to be more financially empowered. And we’ve all heard about the gender pension gap, the gender pay gap.
LAURA: Yep. In fact, we did a whole episode on the gender pension gap, episode three of the Pension Confident podcast. Sorry to interrupt you there, Emma. Please continue.
EMMA: I am determined that my children will not retire with a gap in their pension compared to their life partner, if that is a male. In order to do that, I have set them up with a pension. I’ve written about it on the PensionBee blog as well.
LAURA: So, this is a Junior SIPP, a Junior Self-Invested Personal Pension?
EMMA: Correct. Now anybody can set up a Junior SIPP for a child. They can pay in up to £3,600 a year. Now I’ve put in that small amount for my children. They’re both under the age of 10. I’m going to do nothing else with it and I’m going to let that grow over time for the next 50 years. I’ve told them this. I’ve told them that they’ve got some money sitting there, but they can’t touch it for 50 years. And it’s going to give them a nice big healthy pot, which, by my rough calculations, and assuming that money kind of doubles roughly every 10 years, they could potentially be sitting with a £100,000 pot by the time that they’re close to 60. And that’s the gap that we look at between men and women’s pensions when they hit that age. So, I’ve done my bit for my children to try and help them with the gender pension gap.
LAURA: Fantastic. And so the genius that functions like a regular Self-Invested Personal Pension, except the parent or legal guardian makes the decisions until the child is 18.
LAURA: Okay. We’ve also got Junior ISAs Will?
WILL: Yeah. So you can take out again, a Junior ISA. That will become the young person’s at the age of 18. But you can put up to £9,000 a year into that. It’s worth thinking about, you know. That comes in two flavours, so cash, Junior ISAs, and then you know, an invested one, and you need to look at that within the kind of context of what you’ll be getting from a cash ISA versus cash savings products.
LAURA: So if it’s for your children, you definitely want it in cash, right? Because that’s really safe.
WILL: Well, if you look at the returns and what you’re doing for that ISA, there’s a very strong argument to say that investments will give you that longer term horizon and opportunity, right, and you don’t have to put huge amounts in it. You can get an ISA, put in small amounts, again starting that habit. And I think that’s a really important point about pensions too, right is how do you get the habit going? And it’s an opportunity for grandparents to also start putting money into those, and statistically the biggest contributors into Junior ISAs.
LAURA: So actually, what you’re saying is that because it’s such a long-time horizon that you will have, if you set up a stocks and shares Junior ISA for your child when they’re just born, and then they can get their hands on it when they’re 18. That’s almost two decades that you’ve got to grow that money. And that’s plenty of time to put it in an investment ISA and give it more of an opportunity to grow?
WILL: Yeah, 100%. And it’s the power of compounding.
LAURA: And these things that you’re showing the children, showing them on the app and saying, ‘Look, this is your future, this is how it will grow.’
WILL: I think that you absolutely have a conversation, there is money in there, you know, it’s being contributed to. I think talking about who’s contributed to that also builds up a respect for that. So if grandparents have added money, or you’ve as a parent have added, or actually you’ve got your kids that, you know, £20 quid comes in at Christmas, do you want to put that into maybe your Junior ISA? Then they feel like they’ve built that pot up. Yeah, rather than it just arriving on Christmas Day, on their birthday, aged 18.
LAURA: So we’ve talked a lot about the tools and skills and the conversations that you can have with your children about money. But then there is perhaps the flip side of that, is that you don’t want to create money anxiety in your children. They are still very young. Money is very much part of the adult world. How do you avoid tipping over into them starting to worry about the cost of the extension on your house or worrying, ‘Oh, I won’t be able to save enough for my Xbox’, or whatever it is?
EMMA: Such an interesting conversation and actually something that comes a lot into my world, because when I work with adults who have financial anxiety, a lot of it is traced back to experiences that they may have seen, heard, or experienced when they were younger. And that could be as simple as, you know, parents who are getting divorced arguing about who gets what, or quite often children in divorces are used as a kind of pawns where money might be used as a tool to get one parent more favour than another.
LAURA: And also if money was just quite tight growing up.
EMMA: Definitely, you know, if you accidentally overhear conversations around, ‘We can’t afford this’, it does create anxiety. So my key message really is to be really, really cognisant as an adult of the language that you use around money, around little ears because they’re absorbing everything.
LAURA: Okay, so what should caregivers take away from this and put into action with their children?
EMMA: One of my big things is differentiating between being rich and being wealthy. You know, we should be encouraging children to understand how money works. I think our children are growing up in a world where being rich is aspirational to them. They see social media influencers, they see particularly recently, you know, these people peddling crypto, ‘Come follow me, give me your money, and I’ll make you rich’. They’re growing up in a world where home ownership is going to be tricky for a lot of them. They’re living in a different world to the world that we grew up in, and their grandparent’s generation grew up in. We need to help them understand that, you know, there are no real get rich quick schemes, and help them build the habits, build the behaviours to enable them to build wealth slowly, which is how it should be done. Build it slowly and why? Why do we want to do that? You know, it is all about goals. What do we want out of life? Ultimately, money is an enabler. So going back to basics, you know, what is the life that would make you happy? Because personal finance is very personal, you know, we’ve all got different goals. So being aware of that is so, so important.
WILL: So true. Mine’s a very simple one which is, talk about money and start early.
LAURA: Will, Emma, thank you very much. That’s a wrap. Thank you all for listening and to our wonderful guests. If you’ve enjoyed this episode, you know what to do next. Rate, review, share, and subscribe. You’ll find this in the usual places Apple, Google, Amazon, Spotify.
Want to know more? There’s plenty of information in the show notes and if you’d like to get in touch with any thoughts or questions, email us at [email protected]. Or tweet using the handle @PensionBee. Final reminder that anything discussed in this podcast should never be regarded as financial advice. And with investments, your capital is at risk. It’s not just the kids that are taking a summer holiday. We’ll be off next month and back in September to discuss how you can stop your money affecting your mental health. You will not want to miss this. Join us then, until next time.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.