Research shows that money habits are set by the time children are just nine years old, and while this might seem a little too early to start having conversations about finance, it’s becoming increasingly important that we do.
A recent study from the Money and Pensions Service found that only 48% of children in the UK receive a meaningful financial education. So, whether at school or at home, it’s clear that more needs to be done to ensure children learn how to manage their money in preparation for adulthood.
While as parents or carers, you have a primary role during your child’s formative years, is there more to it than using the likes of pocket money as a way of introducing financial education? And what part can schools play?
The school holidays are coming up and with that in mind, the latest episode of The Pension Confident Podcast delves into the topic of kids and money.
Available to listen to now, it features me, Laura Miller, as host, and guests Emma Maslin, a certified Money Coach and Founder of The Money Whisperer, an award-winning website that attempts to equip its readers with the right money mindset, and Will Carmichael, Co-Founder and Chief Executive Officer of NatWest Rooster Money, which uses digital tech to empower kids with an understanding of money.
For Money Coach Emma, while ‘education settings have a role to play in financial education’, parents should definitely get involved too.
Emma Maslin, certified Money Coach and Founder of The Money Whisperer says: “We live in a society where we’re encouraged to consume and not leave our money in the bank. But we should be encouraging children to leave money in the bank.”.
Why should I teach my children about money?
Learning about money from a young age gives children the skills and confidence to make good financial decisions in adulthood. Speaking about the issue on the podcast, Emma said: ‘If we can teach children the basic building blocks of good money habits and money management, we’re enabling that financial resilience in them as adults.’
It’s an issue the Centre for Financial Capability has agreed on. Jane Goodland, Trustee of the Centre, said: ‘Without a high-quality and effective financial education, young people lack financial capability and a thorough understanding of money skills, and are at risk of facing financial difficulties in later life.’
Recent research by charity MyBnk and the Centre for Financial Capability surveyed over 4,000 children from over 50 schools and found that children with low financial understanding scores tend to come from lower-income areas.
- 76% of schools with children most in need of financial education were in more deprived areas
- 67% of schools with children most in need of financial education had above the national average of pupils on free school meals
All children benefit from financial education, but children from lower-income families more than most – their financial knowledge, skills and savings rose by 56% compared to an average of 7% nationwide.
Money Coach Emma made the link between learning about money when young and avoiding financial mistakes as adults.
She said: ‘Children get taught the basics at school and then at 18 they’re faced with letters from the bank offering credit cards, with no teaching around what it actually means for them to take on that credit card, and what the potential life implications are if they get it wrong.’
When should I teach my children about money?
On when to begin money education with kids, Natwest Rooster Money’s Will believes that talking about money’s “the biggest lesson of all”.
Will Carmichael, Co-founder and Chief Executive Officer of Natwest Rooster Money says: “A lot of people’s first conversations about money are negative ones. So, starting early and talking about it with your kids is the best start.”.
With research citing that money forming habits and behaviours begin at the age of nine, it’s vital that financial literacy and capability is included at primary level. The Centre for Financial Capability is working with primary schools to give every primary aged child ‘an effective and high-quality’ financial education by 2030. Topics include saving and budgeting, but the core is to build the confidence, resilience and skills underlying positive money attitudes and behaviours.
Natwest Rooster’s Will pointed out to the podcast ‘only 8% of financial education is delivered within schools’. All the more important then, he added, that, ‘financial education is a joint relationship between teachers, parents and many more touch points’.
How should I teach my children about money?
Young children of primary school age learn by talking, watching and doing. To teach young children about money, it’s easy enough to use real life examples in day-to-day life.
Money coach Emma, who’s a parent herself, highlighted that, ‘Children are like little sponges and [they] are building those habits and behaviours early.’
Natwest Rooster Money’s Will added: ‘Money needs to be taught contextually - much like you stand by the side of the road to teach your kids road safety.’
The government’s MoneyHelper website recommends some examples, here are some of my favourites:
Shopping trip lessons
Talk about the money choices you’re making. For example when it can be cheaper to buy loose vegetables rather than those in pre-packed bags.
Look and compare prices of products with your children.
Ensure they pay attention at the checkout, and invite them to help you complete the purchase whether paying by cash or card.
Look at the receipt together, going through how much each item cost.
Ask them to spot the ways you use money when shopping, from using a £1 coin to release a trolley, to tapping your debit card at the till.
Talk about ‘pester power’
Pull out all of the items your children have pestered you for over the last fews years.
For each item, ask why they wanted it and how often they’ve used it.
Talk about how much each item cost.
Discuss the difference between wanting what their friends have, and really desiring something.
Counting out pennies
Take a mix of 1p, 2p, 5p, 10p, 20p, 50p and £1 coins on a table.
Use the 1p coins to build a pile of equal amounts next to each of the higher value coins.
Take down the piles and ask your child to recreate them.
While counting pennies can work well with younger children, both Emma and Will highlighted the need to introduce digital money early on as well.
Money Coach Emma said: ‘Younger children are still learning how to count coins and manage change which is really important, but also they’re going to grow up into a world where they probably won’t interact with cash as much as adults. So, we have to be teaching them how to interact [with money] in a digital way.’
Will added that while technology makes it easier for us to spend, ‘it’s also an opportunity for us to learn and teach’. The Natwest Rooster Money app has a big supply of teaching tools for kids of all ages.
With children embedding their money education in primary school, Emma encouraged parents and carers to get them involved in digital learning from home too. She said: ‘You can’t set up a bank account with your own debit card until you’re 11 years old, but a lot of these apps allow children to get involved from about age six.’
Should I give my children pocket money?
According to the MyBnk survey, children with higher financial literacy were more likely to receive pocket money.
Pocket money introduces the ideas of:
What things are worth
Exchanging work for money
Being responsible for your own wealth.
On the flipside, of those children with less of an understanding about money, only one third received regular pocket money. A primary school teacher interviewed by the Centre for Financial Capability said: ‘These are children that don’t have practical lived experience of money because they aren’t able to, or it’s just not part of their normal family routine’.
Pocket money gives children the opportunity to think about saving for their immediate future i.e. saving up several weeks’ money to buy something bigger, rather than getting whatever a single week’s pocket money will buy. This can encourage conversations about the value of having rainy day savings, the need for saving for a deposit for a home, and investing in a pension.
Emma told the podcast the importance of building healthy money habits: ‘When I work with adults that have financial anxiety, a lot traces back to experiences from when they were younger.’
Key action points
Children’s money habits are formed by nine years old. Money Coach Emma warned: ‘Be cognisant, as an adult, of the language you use around money around little ears.’
Break the link
Financial education bridges the knowledge gap for children from low-income families. Will recommends: ‘Initiating positive conversations about money.’
Make learning fun
Teach children about money in everyday tasks like shopping. Emma said: ‘Children are interested, and we shouldn’t be squashing that enthusiasm for learning about money.’
Give pocket money
However much you can afford, it’s proven to help children’s financial education. Will advised: ‘Help them build habits and learn to build wealth slowly.’
Laura Miller is a freelance financial journalist.
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.