Financial education: how to teach your children about money

How do we encourage children to learn more about the basics of managing their money? It’s a problem that continues to defy policymakers.

While financial education was added to the national curriculum over ten years ago, three in four young school leavers say they never received such teaching, according to research published last year by Santander.

And while young adults told the bank they felt confident about their financial knowledge, 79% had never created a budget and 76% had never paid a bill.

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Financial adviser Boon Brokers carried out its own research following Santander’s warnings: “We found 83% of young adults did not list school as their main source of education around finance,” says managing director Gerard Boon.

“The majority of young adults are leaving school with a worrying lack of financial education.”

That lack of knowledge can have serious consequences later in life. Research carried out by financial education charity Money Ready found that the average adult in the UK lost around £640 last year by putting off major financial decisions they found confusing.

More than four in ten Britons think they could have saved more with better budgeting skills; a third told Money Ready they actively avoid making such decisions because they don’t know where to start.

All of which suggests that schools may be falling short in terms of their responsibility to educate future generations of adults about the basics of managing money.

But school leaders point to a curriculum that is incredibly crowded with both academic subjects and other topics that sit under the banner of personal, social, health and economic education.

There simply isn’t enough time in the school day to support greater financial literacy. Families are therefore going to have to step up.

A recent survey by charity Young Enterprise found that 61% of Generation Z look to their family for financial advice compared with only 13% who view their school or college as one of the top sources.

Financial education starts with the piggy bank

The good news is that the resources and support available have grown exponentially in recent years.

Anyone wanting to teach children about money matters now has lots of options. And there is also plenty of material aimed directly at children.

The most important message of all, say both financial experts and many families, is that building teaching financial literacy into everyday life really works.

Most children learn best by doing, rather than being told what to do, so give them every opportunity to practise what you preach.

“It’s great for children to be exposed to money little and often,” says Becky Harris, a former primary-school teacher who is now at Realise Wealth Management.

“Popping to the shops? Involve them in the process. Ordering a takeaway? Let them help you budget,” she says. “And in a society where physical money is used less and less, allowing them to engage with coins and notes is not only fun, but also helps to link their conceptual understanding to the actual cost of things, even when tapping your contactless card.”

Certainly, there is nothing wrong with taking a more analogue approach to money, especially with younger children, whose digital interactions you may in any case be keen to limit.

The traditional piggy bank is as appealing to children as ever, encouraging them to keep track of how their pocket money is adding up – or counting down.

It’s a tangible lesson about what happens when you receive and spend money.

Still, the digitalisation of financial services has brought a new generation of products aimed at children – and these can also be an excellent way to get practical financial experience.

It’s an increasingly competitive market. GoHenry, one of the best-known brands in this area – and the market leader – now has hundreds of thousands of child users in the UK, but has seen rivals emerge, including HyperJar, Osper and Nimbl.

Several of the digital banks have launched similar products, including Monzo, Revolut and Starling.

These products, available to children as young as six, are broadly similar. They receive a pre-paid payment card, on to which parents and other family members can load cash; they can then use these cards for spending – in person or online – or to withdraw cash.

The accounts don’t allow children to get overdrawn, so they’re a low-risk introduction to spending money this way. In addition, the accounts come with an app that allows parents – and children, if they have a smartphone – to monitor and manage spending.

In many cases, the app offers lots of additional features – the potential to allocate some cash to savings and spending pots, for example, and to give to charity. Parents can often set spending limits, or bar certain types of transaction.

You don’t have to fund these accounts purely from pocket money – they can also be a good way to introduce the idea of earning money, suggests Tim Bennett, head of education at wealth-management firm Killik & Co (and former deputy editor of MoneyWeek).

“A pre-paid debit card provides a means to pay rewards for, say, helping around the home and also provides a vehicle for children to create realistic budgets and think about their own financial goals, such as funding a trip or even some of the cost of university.”

But be ready to discuss these ideas with your children. “Parents should make time to talk to them about budgeting and also help them start thinking about how their saved money could grow,” adds Bennett.

Equally, while these products can be an excellent way to get children used to managing their money in similar ways to adults, you do need to shop around, since each one carries different charges.

In some cases, these accounts have become quite expensive – GoHenry, for example, now charges £3.99 a month, which can take quite a chunk out of your children’s cash. Other accounts levy one-off fees for transactions such as topping up cards, making cash withdrawals, or transferring money elsewhere.

By contrast, a traditional child’s bank account offers an alternative to the pre-paid cards market and is typically free.

They’re usually only available to children aged 11 or over; your child will get an adult-style debit card – although they’re still not allowed to get overdrawn – and they’ll typically have access to mobile banking.

They’ll also be able to set up payments such as standing orders.

Children have to open their own bank accounts – although you can help them fill in the forms – and parents don’t have any control over where and how they spend their money.

The best products – including accounts from Nationwide Building Society, HSBC, Santander and TSB – pay generous rates of interest on account balances.

Earn that financial education badge

Giving children practical experience of starting to manage their money in this way will pay dividends later on. But you can also supplement their understanding by encouraging them to access educational material specifically designed to boost their knowledge.

The banks can be a good place to start.

Most of the high-street banks now produce a range of resources – podcasts, videos, online games and other interactive material – with different options for different age ranges.

Barclays, HSBC, Lloyds, NatWest and Santander all produce materials for both primary-and secondary-school children.

If you’d prefer to steer clear of corporate sponsors, Young Enterprise operates Money Heroes, which produces a huge range of materials for both parents and children, mostly aimed at three-to 11-year-olds.

Another option is Money Saving Expert, the website and comparison site founded by consumer campaigner Martin Lewis, who has been a long-standing supporter of improving financial education standards in the UK. He’s produced a series of online videos where he talks children through basic personal-finance topics.

In addition, if your children are part of the scouting or guiding movements, ask your groups whether they’ve considered focusing on this area. Beavers and cubs can work towards their Money Skills Activity Badge; the Guides Association’s Live Smart badges cover similar topics.

This is not to suggest outsourcing all the work of building your children’s confidence about money.

“It’s absolutely vital to start talking to your kids about money as early as possible,” argues Liz Hunter, commercial director of price comparison service MoneyExpert.

“Children of all ages can benefit from learning to manage their finances early in life, and, as with most things, experiences at home have the greatest influence. Research also suggests that how we behave around money as adults is learned during childhood from observations we make as we’re growing up, whether that’s from our parents, friends or from television.”

Indeed, setting the right example is vital. That means talking to children about how you manage your own money, but also thinking carefully about the money you give them.

“Giving your kids too much pocket money could be detrimental to their future financial habits,” argues Hunter. “As well as becoming overly reliant on you for money, they might be less motivated to earn it themselves. The best way to mitigate this is to avoid giving them so much that they never have to save for bigger purchases.”

How much is too much? There’s no simple answer to that, but it’s worth reflecting on what other families hand out.

A survey published by NatWest Bank last year found that the typical seven-year-old in the UK was getting £2.85 a week, rising to £3.67 for 11-year-olds, and £6.59 for the average 16-year-old.

If you’re handing over considerably more than that – especially if it’s not linked to chores or other behaviours – it might be time to have a difficult conversation.

Ideas for setting good habits

Sam Morris, a business owner with two children, now aged 12 and 16, says she worked hard to get her children engaged and interested in money from their early years onwards.

“I grew up financially illiterate and as a young adult made some bad decisions,” she says. She was always determined that her children wouldn’t follow in her footsteps. The key has been to find practical life lessons.

“For example, when we went on holiday, we told the children how much money we had for the week for spending money and food and let them decide how to spend it. They had to work out what sacrifices they would need to make the next day if they wanted to go to a higher-priced restaurant.”

Kate Steere, a personal finance expert at price comparison site Finder, adds: “The main way I teach my kids about money is by giving them ownership of it. I do this in two ways. The first is a weekly allowance, because having their own money lets them make real decisions and build healthy money habits. The second is involving them in the family finances; we did this by giving them control of the budget for a family day out, handing them £100 and letting them take charge of how it was spent.”

Emma Ball, a chartered accountant who has ten-year-old and seven-year-old boys, makes a similar point. “I make financial education part of learning at home,” she says.

“The children are involved in practical decisions, like budgeting for their own treats or saving for longer-term items; their pocket money is split into spending, saving and giving.”

However, technology can get in the way.

“So much money is digital, including instant payments, apps, and online shopping, and this makes it harder for children to see the real value of money,” she says.

“The biggest challenge is counteracting a culture of instant rewards, so demonstrating good financial habits as parents is essential.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.