‘A penny saved is a penny earned’, so goes the old adage. A useful lesson perhaps for helping your child start to understand how to save and manage their finances as they grow up. But is this where the lesson both starts and ends?
With so many financial puzzles to negotiate throughout our lifetimes, from pensions to taxes, stock markets to bonds, and mortgages to ISAs, it’s no wonder that 39% of adults don’t feel confident managing their money. So, like many parents, guardians and caregivers, you might be seeking further guidance on how to teach your kids the basics when it comes to understanding their money.
Where should education begin?
There are a few things that we can teach children at home when it comes to using money day to day. You might already use pocket money as a way of teaching your kids the basics of saving, perhaps as a reward for doing chores in the hope that they’ll begin to develop an understanding of how earning a salary works. However, it’s only natural to seek help with educating your children further, especially with something as confusing as money. So what else can be done to benefit your child’s learning and understanding about the basics of finance?
If you think back to your early days at school, how many lessons and subjects included the fundamentals of understanding finance? While it’s true that skills developed in maths lessons are vital for understanding numeracy and the concept of money, is it perhaps time that the curriculum was more geared towards teaching the young about pensions, insurance, and other financial matters that they’ll encounter in adulthood?
Things have begun to change in recent years and in 2014, financial education became part of the curriculum in English secondary schools. However, financial education is currently only delivered as part of Personal, Social, Health and Economic (PSHE) lessons, which are not compulsory and are delivered alongside a number of other topics.
In a recent report, a cross-party committee of MPs have called for financial education in England to be compulsory at primary schools. The report noted that kids need to start learning about finance at a much earlier age, and that the current delivery was inconsistent across the UK. Research shows that money habits are usually set by the time our children are between seven and nine, so by the time that students in England start their financial education at secondary school, it may already be too late. The report also showed that children from lower income families were at a far greater disadvantage.
How to teach kids about money: What resources are there?
Part of the difficulty in teaching children about finances ourselves is that their relationship with money is likely to be completely different to what we experienced growing up. In a digital age where cashless payments are proving more and more popular, there is a danger that the knowledge we pass down will already be out of date by the time our kids are responsible for their own finances.
Thankfully, some resources do exist to set younger people up for their financial future. These include pocket money apps where you can pay into your child’s account and even give non-monetary rewards such as ‘stars’ when they are well behaved or complete chores. There’s also a number of financial plans aimed specifically towards children to help them to build savings before they reach adulthood. Here are some examples:
These work in much the same way as your own pension, only it is you that controls the plan up until your child turns 18. Once you’ve set the plan up, you or any other adult can pay into it.
Much like a regular SIPP, investment choices are made by the planholder rather than the pension provider, this being you up until your child turns 18.
Children’s savings account
This may be a good way of teaching the importance of saving. They’re designed so that you have to make regular payments at a rate of interest. Both you and your child can usually deposit and withdraw from the account.
A Children’s or ‘Junior ISA‘ is a savings account with the long-term in mind. They’re tax free, but come with a savings limit of £9,000 as opposed to £20,000 in an adult ISA, and can only be withdrawn from when your child reaches 18.
Children’s bank card
These are essentially a kids version of a debit card that can be linked to children’s bank accounts. They can only spend as much as is in the account. Unlike some of the above plans, these have to be set up by the child in their own name with your supervision and are only available to children aged 11 and above.
Prepaid debit card for kids
The key difference between prepaid cards and children’s debit cards is that rather than a bank account, they’re linked to an app such as NatWest Rooster Money and GoHenry. As a parent, you’re able to load money onto the card for your child to spend. One advantage you may find with this method is that you can set limits to help them keep control of their spending. You can also set them up from an earlier age, with your child able to start from six upwards.
If you feel it’s a little too early to set your little ones up with an account where real world transactions are taking place, there are other options. While we wait to see if any changes are made to the national curriculum, there are many charitable organisations that can lend a helping hand in the meantime. Organisations such as My BNK offer online resources to help teach young people the basics of finance through engaging games, quizzes and videos.
As helpful as many of these tools are, they unfortunately require children to have access to a digital device, which puts lower income families at a disadvantage. In a recent Ofcom report, it was found that one in five children didn’t have access to an appropriate device for learning at home. This was highlighted during the COVID-19 pandemic when schools up and down the country turned to virtual lessons, relying on students having access to not only digital devices, but a strong internet connection.
With little financial education happening at schools, and a disproportionate amount of children getting access to resources at home, parents are under pressure to teach these valuable lessons themselves.
The benefits of financial literacy
Only 44% of 11-17 year-olds feel confident with managing their money, so setting our kids up for the best financial future we possibly can has never been more important. In addition, 47% of adults say they don’t feel confident making decisions about financial products, which is likely as a result of not having a solid understanding of finance from a young age.
As prices rise in the supermarkets and the cost of living crisis continues, saving money where possible has become a vital life skill. It’s estimated that 10.7 million UK adults are rarely, or never able to save. Therefore, it’s imperative that financial education begins to improve so that adults and children alike are better equipped to save effectively, avoid debt and overcome other financial hardships throughout their lives.
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.