30 May 2024
Colette Machado
Financial Education
Despite financial education being added to the UK school curriculum ten years ago, research shows that it’s still not being adequately taught.
This may come as no surprise! Many of us spent over 14,000 hours in school without receiving ANY financial education. We may have studied algebra, Pythagoras’ theorem and the World Wars – but nothing about money. Consequently, debt is prevalent in many UK households.
According to The Money Charity, at the end of March 2024, debt owed by people in the UK amounted to £1,843.9 billion, up by £12.35 million from the previous year. These figures highlight the urgent need to teach future generations about money at a young age.
Teaching children about money sets them on a path toward financial literacy, independence and responsible decision-making. Managing money is a crucial life skill that, if developed early, will help them navigate adult life and prepare them for the real world.
So, When Should Children Learn About Money?
It’s never too early (or too late) to start teaching children about money. Starting early can prevent many mistakes in later life. Children as young as two or three can understand simple money concepts, and research by Cambridge University suggests that by the age of seven, children are already forming financial habits! From the basics of saving and budgeting to more advanced concepts like investing and borrowing, these early lessons create a strong foundation for a lifetime of financial well-being.
Here are some tips to help you talk to your young children about money and set them on the right path. Note: We'll focus on teenagers and young adults in another article.
Needs vs. Wants
Can you remember when you got your first pay cheque? Did anyone take the time to sit down with you and explain budgeting? Do you wish they had? Teaching your children the importance of thoughtful spending now will go a long way toward helping them manage their money in the future.
Encourage them to think before buying and to distinguish between needs (like food and necessary clothing) and wants (like gadgets and toys). Explain the concept of delayed gratification and how patience and saving can lead to more meaningful purchases. This will lay the groundwork for a financially secure future.
Saving
A good and simple first step in financial literacy for children is saving. One useful method is to have three clear jars: One each for Spending, Saving, and Sharing. Most of us had a piggy bank when younger, however, unlike piggy banks, clear jars will allow your child to see their money growing.
Spending Jar: For pocket money to spend on everyday, inexpensive things such as sweets and books.
Savings Jar: For bigger items they might want but don’t have money for now.
Sharing Jar: To donate to a charity of their choice, or to give to those in need. Tips to Encourage Your Children to Save: Encourage the saving habit by giving your children a little extra pocket money or, better yet, have them earn extra money through chores. Depending on their age, you can share simple budgeting articles with them.
Encourage your children to set short-term, medium-term and long-term savings goals, whether it's buying something they want or saving for their future education. Everyone loves holidays, so you can easily get the children involved in saving towards pocket money to spend during the family holiday. Encouraging children to donate a portion of their money to those in need, instils empathy and generosity. Once they are old enough to have their own bank account, introduce the idea of having a savings account which will enable them to see how their money is growing over time. Explain why having an emergency fund is crucial for financial security. Teach them to prepare for unexpected expenses.
Investing
Explain the differences between saving in a bank versus investing in stocks, bonds, and other assets. Help your children understand that investing allows money to grow over a longer period.
Introduce the concept of planning for major life expenses, like education, buying a home, and retirement. Your children will soon understand the benefits of investing as a way of saving for the future as opposed to saving in a bank for more short-term and medium-term goals.
Compound Interest and Growth
Teach your child about the power of compound interest, explaining that the money they save will earn interest, then they can also earn interest on the interest. Explain to your child that starting to invest at a younger age lets them take advantage of the power of compound interest for a longer time. This concept will help children think about planning for the future wisely.
In Genistar we teach our clients about the Rule of 72, which is a very interesting and useful principle. It’s even said that Albert Einstein called it the eighth wonder of the world. You can use the rule of 72 to show how long it takes for your money to double at a certain interest rate.
This concept will help your child understand the value of planning for the future even at a young age and why it’s important to make sure they are getting the best interest rate possible.
Earning money
Introduce the idea of earning money through simple tasks or chores. This shows children the connection between effort and income.
Encourage creativity and entrepreneurial thinking by teaching your children that they can create their own opportunities to earn and save.
Empower Your Children
Empowering children with financial knowledge is one of the most worthwhile gifts you can give them. Knowing how to handle money will have a huge impact on your children’s quality of life and the future decisions they’ll make.
It’s our duty to support our children and young people to become a financially-savvy generation of adults. If you’re not sure where to start with your children, try some of the ideas in this article, or contact your Genistar representative for more ideas. If you have specific ideas (for children or adults) that you would like us to address, please contact Genistar and let us know.
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