Financial superkids: How to teach yours to be brilliant with money
To tackle the "Pandemic Financial Education Gap", Compare the Market has partnered with MyBnk to improve the financial and social mobility of young people by helping them make better financial decisions. The partnership will work with young people to remove financial pressure and supply them with the skills and services they need to manage money in a cost-effective way. MyBnk works with 5-25 year olds and, over three years, the partnership aims to help over 70,000 young people directly and create over £5 million in social value.
Research has found that our money habits are formed by age seven, so talking to youngsters about money can form positive habits and capability to last them a lifetime. It’s especially pressing after the pandemic, when young people are playing catch-up on their education – including their financial education and experiences.
Young people have had limited opportunity for financial education through the pandemic, which brought huge disruption to their education in general.
They also had less experience of managing money day-to-day through the numerous lockdowns, while not being able to go out has increased online spending – a new experience for many children.
Some households have also faced job losses, or had to tighten their belts due to furlough.
These upheavals can be challenging for children, says Fiona Montgomery, Head of Education at MyBnk, a Compare the Market partner charity that empowers the next generation through financial education.
“Young people have lived through all these changes, heard the conversations between adults at home, and seen the worrying news headlines about the economy, and had to absorb this without any real understanding of what it means,” she says.
There are strong links between money and overall wellbeing, with those in debt cycles often struggling more with their mental health, and MyBnk has looked closer at the relationship between money and mental wellbeing in young people.
In a study of 3,700 youngsters aged 11-25, MyBnk found that females had less financial confidence and more money-related mental health concerns than their male counterparts. However, after intervention, the gap closes and females overtake the abilities of males.
The benefits of financial confidence reach beyond individuals and families.
“Overall there is a greater societal benefit,” says Fiona. “The more young people are able to manage their money, the more social value is created, the more the economy is stimulated, and the less pressure is put on services.”
With all these benefits, is it time to talk about money – a topic many of us feel is rude or taboo – with our children?
Here’s how to do it.
1. Just get started – the earlier the better
Most children’s first step into money management begins with juggling weekly pocket money, or deciding how to spend birthday money. As research by the government-backed Money Helper has found that adult money habits are set by the age of seven, before children are even at junior school they’re heading towards being a “savvy spender” or a “splashing-the-cash” type.
The challenge for parents at this age is knowing how to make any financial lessons age appropriate.
Research by the Money Helper found that adult money habits are set by the age of seven
Chatting about compound interest with a four-year-old isn’t going to go very far, but making money a regular family discussion is a good place to start.
As Fiona says, it’s essential to engage young people in conversations about money – both good and bad – so that they understand what is happening and do not treat it as a taboo subject.
“MyBnk makes financial education relevant and engaging, using tangible examples, in a language young people understand. We have found this approach really works,” she says.
An easy way to do this is during the weekly food shop where you can use the outing as an opportunity to talk about planning, saving and finding the best value. Let your children hold the list and lead the way or, if they’re older, give them a few items from the list to find on their own at the best price.
For children under five, why not print off a picture list of a selection of items and have them tick these off while you move around the supermarket? Not only will it help your preschooler get involved in the food shop, but it will keep them busy while you keep an eye on your budget.
2. Chop down the money tree
If you want to teach your children about cash, it’s crucial that you explain where it comes from and that when you work, you get paid.
And if you don’t work, the money will stop coming in.
The key is to demonstrate the relationship between work and money – it seems simple but is often forgotten by parents.
3. Avoid saying “we can’t afford it”
Though experts warn against telling your children that you can’t afford it, it’s easy to use this default response when your child is hounding you for the latest Harry Potter merch while you’re struggling with an essential food shop.
But using this phrase gives the impression that you’re not in control of your finances, which can be scary for kids – and create future money anxieties. Instead, say: “We choose not to spend our money on that right now.”
4. Pay your kids pocket money
Forking out a weekly allowance can be a divisive topic among parents.
Some argue that financial rewards are a good way to get kids to help around the house. Others say that helping with chores is simply a part of being a family and should not have to be paid for.
However, another way to look at it is that providing your kids with pocket money is one of the best ways for them to learn how to handle money on their own – as long as it’s used appropriately.
But when is a good age to start? Experts suggest starting with a weekly amount when your child enters infant school. Then space out the timing to fortnightly or monthly by the time they are finishing secondary school.
Decreasing the frequency of payments will be a great lesson that will set them up well for adulthood and a monthly salary.
Also, don’t let your child ring-fence their pocket money for treats and toys. It should be issued with the understanding that while some of the cash can be on fun stuff, a portion of it must go towards covering needs.
How much should you be paying out? It’s a personal choice, but figures from Childwise show that kids are now getting £11 in pocket money per week.
What’s more, it seems that the gender pay gap starts even earlier than we thought. According to the research, boys receive £12.50 per week on average, while girls receive just £9.50.
5. Encourage saving with birthday and pocket money
It’s crucial that you show your children that money can play a variety of roles in their daily living, whether it’s spending today or saving for tomorrow.
Providing pocket money in lower denominations makes it easier to allocate a proportion of your child’s income to these different goals.
By encouraging saving, children experience the positive emotions – particularly satisfaction – connected with saving money.
For younger kids, labelled jars work to separate the money – one for saving, one for spending, and one for sharing with those who are in need.
Any time they make money by doing chores or receiving birthday money, encourage your child to divide the cash equally among their three jars.
It’s not a huge act, but it does start the process of understanding at a young age that it’s okay to spend some of your money, if you’re giving back to others and saving as well.
Once they’re older, you can set them up with bank accounts that mirror the split.
6. Explain the difference between needs and wants
It’s only natural that kids want the latest toys and gadgets, but making them understand the difference between needs and wants will help them make sensible spending decisions from a very young age.
One way to do this is to put it into a context that your child can understand – for instance, explain how many weeks of their pocket money it would cost to pay for the item.
This will help your child understand a crucial lesson: that money buys you choice.
“It’s not about how much you have, but what you do with it,” says Fiona. “Money is finite, money is valuable, money provides choices.”
7. Make cash king
One of the best ways for children to see money in action is when you make transactions with cash – whether it’s at the shops or through giving pocket money.
It’s only once they have grasped “real” money that you can move on to the more difficult concept of virtual or digital money.
According to the Bank of England, cash withdrawals from ATMs were down by 40% at the end of 2020. Cash withdrawals fell a further 6% last year, from £81 million to £79 million.
However, when shopping with younger kids, paying with notes and coins where possible (and Covid-safe) can be a valuable lesson.
8. Let them make mistakes... and learn from them
As hard as it can be to stand back and let your child control their own cash, there’s value in doing it.
If things go wrong, resist the urge to sort it out. Dealing with the consequences of their actions will encourage your child to learn to make smarter financial decisions.
As Fiona says, as a parent or carer it’s ultimately your decision as to how much risk you want your child to encounter, but powerful lessons can be learned about what not to do as well as what to do.
“The emphasis should be on providing a safe space for children to make a mistake, and discuss what they could do in the future to find an alternative solution,” she says.
“Understanding the difference between instant and delayed gratification is key in helping them make informed choices. Do they really need the item they’re buying straight away? What if they see something else they want? Could they wait, think about it, and then make a decision?”
3 things to do right now...
To a kid, being told to save – without explaining why – may seem pointless. Help them set a fun savings goal to help them focus.
Part of being a better saver means knowing where your money is going. If your kids get pocket money, have them record when they spend it so that they can see where their cash is going and how fast it disappears.
Just like adults want to be rewarded for saving with interest, kids are motivated by incentives. So, if your child has set a big savings goal – a new games console, for instance – you could offer to match a percentage of what they have squirrelled away once they hit their target.
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Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.
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