It’s important that children are properly educated across a range of subjects—including how to manage their money. As a core skill for later life, financial education was included in England’s secondary school curriculum back in 2014. While this was a step forward in improving financial education for children and school-leavers, the problem was far from solved.
Although The Money Charity found out that in 2016, 90% of schools were providing financial lessons, 66% of teachers believed this provision was either 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.
A number of potential reasons for this have been considered, from an overlooked position in the curriculum to ineffective teacher training — but what effect is it having? 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.
But it is not just the responsibility of teachers to deliver this education. With one in six parents not feeling comfortable doing so, True Potential Investor — a pension transfers expert — offers their advice on education at each age.
An early age
Once your child turns seven, their financial attitude will already be decided — according to The Money Advice Service. It’s important that you start talking to them about money and what it means early.
- Get your child to help count out your cash. Doing so can help them not only get used to handling and counting money, but also improve their numeracy skills.
- Let them hand over the money and ‘pay for’ the product to illustrate the exchange transaction.
- Use play to educate. Many children will like to play shop, which will again help them better understand money and value while still remaining fun.
Outline the difference between what they need and want
Children will often ask for items without really understanding the scale of what they’re asking for or the associated cost.
- Don’t be afraid to say no to expensive wants. 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.
- Illustrate the cost of an item through a comparison. 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.
Support their savings
In addition to teaching them about spending, they need to know 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.
- Educate them about financial responsibility by helping them split their money across 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.
Preparing teens for financial independence
Moving on to college and university can be a difficult transition, especially as they become wholly responsible for their finances. As a parent, you’ll need to prepare them the best way you can:
- Accept that mistakes will happen. 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.
- Praise their work ethic and encourage them to keep at it. Earning on their own is one of the best ways to understand the value of money.
- Teach them the skills they need to become financially responsible adults. 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.
Financial education is essential at each stage of your child’s life. If you’d like to top-up your own financial knowledge, 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. Three free personal finance courses are available to help improve financial confidence across the UK.