Teaching Children About Money: The School Years

This is the first in a series about helping your children acquire good money habits for life. We’re kicking off with school age children, from 5 to 18. Partly because they probably won’t learn this at school and partly because UK financial literacy is “uniquely bad” compared to other nations. We have tips and suggestions to help you.

The Great British Taboo

We have a thing about talking money in this country, don’t we? Does our national trait of underplaying success – unlike Americans for example – mean we don’t talk finance at the family dinner table?

Not so.

Younger Britons are happy to talk money. New research says there’s little taboo there at all – unlike say for Baby Boomers. Your kids are likely to soak up anything you tell them.

And that’s just as well, because you’re probably their best source of financial ‘advice’ at this stage.

They don’t learn about finance at school, beyond the basic arithmetic (remember all those “Mary buys 12 sweets …” questions?) Social financial influencers are often in it for the money; that’s why they’re probably talking up crypto currencies rather than the virtues of budgeting. And, even though it hurts to say, we don’t get many enquiries from under 18s here at First Wealth!

So, it falls to you. Here are three things to think about.

Saving

Depending on your child’s age, you could start off by working out what they know. Questions like “What do you think money is for?” and “How do people use money?” can help you establish a starting point.

Then, the best way forward is to get them thinking about a practical example.

For example, do they want an item or experience that requires saving? A phone? Clothes? A trip? How much do they have – thanks to pocket money or birthday-style one-off payments – and how much do they need? Give them the opportunity to apply their knowledge of arithmetic to the problem.

If they can get their heads around this, you can then get them to think about bigger things. How do people afford homes, cars, holidays and other items?

Then you might want to explain how interest works. Compounding is the mathematical miracle that’s powered almost every investment in history. The older your kids, the more likely it will resonate.

Budgeting

Practical experience will almost always trump theory, especially in budgeting.

Let’s say you’ve just booked a family holiday. The cost is X. You can explain to your children that, to get to X, everyone needs to make some savings over the next few months. What do they suggest cutting back on? Going out? Food? Clothes?

For example, take them to the supermarket and show – or challenge – them to reduce a shopping bill by a certain sum. Show them how that sum contributes to the goal of getting to X.

This also gives you an opportunity to talk about the difference between essential and discretionary spending.

As we all know, budgeting is a lifetime habit, not a one off, but you can show them this too. All you need to do is place assets and income (in child speak, ”what you have”) alongside liabilities and outgoings in another (“what you must spend”).

There are lots of ways to do it: many of the banks have junior apps that include budgeting tools, or (like us) you might like a good old fashioned Excel spreadsheet, and then there’s the trusty old pen and paper. One of these will engage your child, I’m sure.

A good rule of thumb for kids is the 50/30/20 idea. Every time they get some money, half of it goes on essentials, 30% on enjoyment and 20% into their savings account, Child ISA or whatever you’ve set up for them.

Spending

The older your kids get, the less control you’ll have over their spending.

The absolute goal is to avoid spending more than they earn… something like a 50/60/0 model! This can lead to high levels of (often high interest) debt, a negative relationship with money, mental health issues and worse.

If they’ve got their heads around the positive power of compounding for savings – then you can have a conversation about the negative power of compound debt. For example, we hopped onto a Barclaycard calculator, which tells us if you borrow £1,000 and only repay the minimum amount each month, it’ll take 16 years and 9 months to repay… and the sum will have grown to £1,662!

Not a good habit to acquire.

When do you have these conversations? There’s a saying in our line of work: “When’s the best time to plant a tree?” The answer is of course: now.

The only advantage in waiting is when a really good opportunity for a practical example presents itself. Otherwise, just go for it. They’ll thank you when they’re older.

The next article in this miniseries looks at when your children enter the workplace and come face to face with bigger money questions. For now, we’d love to chat about your family’s money. Get in touch on 020 7467 2700 and hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.