The world our children is inheriting is far more complex than the one we grew up in and no more so than the financial world. Educating children about money is incredibly important.
We are banking more on-line, buying more on credit and these bring added issues such as cybercrime and identity theft which we never had to deal with before. It highlights how important it is as a life skill to know about these things in the same way as cooking, ironing or changing a bike tyre.
While many children today will grow up to do jobs that are yet to be invented, so too will the financial sector keep shifting and re-inventing itself to reflect the changing world. Our children will need to be able to keep up.
What we need to do is teach them the basics and add in the more complex elements as and when they are needed or invented.
What do children need to know about money?
I think it is important to focus on the outcome first as this will allow us to know how to respond. We need our children to leave home and either go to university, start an apprenticeship or job knowing the following things:
- How to budget
- How a bank account works
- Why saving is important
- Various lines of credit / borrowing
- Student finance and the costs of university
- Renting vs buying
Learning how to save
The basics of budgeting can be taught from an early age by allowing children to manage their pocket money. This will allow them to see the true value of money; what it will buy and how to ensure that they don’t spend more than they receive on a weekly or monthly basis. If you get this essential life skill right you will be setting them up for successful financial future.
They will soon understand that not everything they want can be bought from their weekly pocket money and that having a savings plan will give them a sense of financial discipline. This will hopefully lead to them contributing more around the house or gaining some form of part time employment. The sense of achievement when a savings goal is reached is so important.
They need to know that there are some things that we need to borrow for such as cars and houses, however they do need to understand that good debt is debt you can afford and bad debt is debt you can’t.
The cost of going to university
At some point the cost of university will form part of many family discussions and I think that it is important all concerned understand what the actual costs are and which loans and grants are available:
- Tuition fees in England are currently £9,250 per year – loans available
- Living Costs: The National Union of Students has calculated that living costs including accommodation and food can average £12,160 per year
- This would, for a 3-year degree, add up to £64,230
Some useful tools for teaching children about money
Depending on the age of your children or grandchildren there are some useful online tools and apps that can help with their financial education:
- RoosterMoney and GoHenry are two Apps which allow children to manage their pocket money including creating savings goals and links to chores or tasks. You can have ‘virtual money’ or alternatively offer your young person a debit card tied to the account. The benefit of this approach is that they feel independent whilst you have oversight of their account and the reassurance that safeguards are in place.
- For older children the Make Money Sense website has some great resources including a fun quiz to test your attitude towards spending and saving.
- Barclays LifeSkills also offers a money personality test and advice about phishing and online fraud.
- I’d also recommend My Personal Finance Skills from our professional body the CII.
- Our charity partners Young Enterprise are of course a great source of information and advice. They have curated a wide range of financial education resources suitable for all ages. You can access it here.
It’s never too early to start learning about money
Eighteen years of gradual financial education will mean that your children means you’re your children will be better prepared to budget and spend wisely as they become accustomed managing first their pocket money, then their income from their first job.
With good guidance and the freedom to manage their own funds your child should be well equipped to meet future financial challenges successfully.
Author: Nick Onslow, Chartered Financial planner, The RU Group
This content is for information purposes and should not be treated as advice.