A recent report published Orbis Access, the online investment company, exploring the attitudes to money of one thousand 7 – 11 year olds highlights that children have an acute awareness of the importance of money, but don’t understand the value of it.
As a parent who is increasingly and fretfully aware of what a money-driven society we live in, and who has no idea how or when I should be starting to teach my own daughter, the question of what practical actions we can take to help our children become financially competent adults has never been so much at the forefront of my mind.
So then, how and where DO we start? I talk to Dr Elizabeth Kilbey, who is a Consultant Clinical Psychologist and an expert on the Channel 4 series, The Secret Life of 4, 5 & 6 Year Olds to find out for this installment of the Expert Editions series.
Why is it so important to teach our children about the value of money in this day and age?
It’s always been important to teach children about the value of money. However, Brits remain deeply reluctant to discuss a subject which, for many, remains a taboo topic of conversation at home. This has to change.
If we don’t change our approach we’ll have let down a whole generation who should be leaning from us, for guidance and support during their formative years.
Indeed, research shows that by the time we reach adulthood, many of us struggle with money. Uncontrolled levels of debt and a lack of savings are all too common. This situation need not be inevitable if we teach children about money, so that they have a good relationship with it in the future.
At what age can we begin to start to teach our children about the value of money?
In my opinion we should start to teach children about the value of money from when they start school. It should be as important as learning to read and write.
While many parents may want to protect their children from being exposed to money at too young an age, the research from Orbis Access tells us that despite our best efforts to shield them from financial troubles, they are actually acutely aware of them.
What are the money lessons we should all be teaching our children?
We need to empower and trust children. It’s about more than ‘storing’ money in a piggy bank. That’s not saving – that’s hoarding by another name! Give them the skills and knowledge they need to grow into adults who worry less about money.
Money lessons should be more than addition and subtraction. We need to start with the basic concept of money which is that we earn it, save it and spend it.
Parents and guardians should explain how they are earning money; what then happens to it and provide safe opportunities for children to transact.
This means showing how cash machines work and explaining that the money which is ejected has come from an account. Likewise, give them money and ask them if they think it will be enough to buy a basket of goods and let them try-out contactless payments under your watchful eye, rather than in a shop with their friends.
And how can we go about teaching these to them in an age appropriate way?
If we start by teaching the basics concepts of money from an early age, we will have laid the foundations to gradually increase their exposure as they get older.
Whatever age they are, parents should not be afraid to discuss money with their children…that includes debt and financial hardship. It is doing everyone a disservice to buckle under pressure to demands for the new trainers rather than to explain that finances are tight but that you could all aim to save some money towards them for Christmas.
Similarly, be open about money (within reason and good taste!) and allow your children to see you dealing with money so that they pick up good habits rather than sleepwalk into debt in early adulthood.
And what about saving?
Saving should sit at the heart of financial education for children. As I said, most children start by ‘storing’ money in a piggy bank, which is fine, but parents should be considering a more formal financial product. The low interest rate environment coupled with the rising cost of living (inflation) means that it is pretty much pointless saving money in a bank or building society.
Instead parents should consider investing little and often from an early age. A product such as the Orbis Access Stocks and Shares Junior ISA enables parents/grandparents to invest from £1. Any money invested in a product such as this over a long period (at least five years and until the child turns 18) will benefit from compounding as well as likely long-term gains in the stock markets. There are no guarantees when it comes to investing but when you’re in it for the long haul, chances are you’ll be ok and doing much better than simply saving in a bank.
Whatever parents decide to do, they must involve their children and explain what is happening to any money which is set aside. For many children next week is difficult to comprehend, so explaining that the £10 from Grandad is going into an investment until they are 18 years old is particularly challenging. But remember that they will be thanking you in the end when the investment helps pay for college, university, a first car or a deposit for a flat!
What are your top three tips for teaching children about the value of money?
I actually believe there are five points that parents should consider to encourage and educate their children – these are outlined in the Kids’ Money Matters report:
1. Get physical – learning about actual money, the coins and banknotes. Most parents think that this is all that goes in to learning about money, but it’s not the only lesson
2. Be practical – how to use money and its value in the real world. The practicalities of how to buy things and how the cost of items compare. The real world cost of things
3. Three things – the things you can do with money: earn it, save it, spend it. Children need to learn all three of these skills because they are going to need them all in adulthood
4. Don’t be afraid – money can sometimes be a ‘scary’ subject to talk to your children about, but if you avoid it they will have the same psychological relationship with it
5. Be open – allow your child to see you dealing with money, making sure that they pick up good habits from a young age
And how and when should allowances/pocket money fit into this equation?
Allowances and pocket money are an excellent starting point to teach the concept of earning money. In my opinion there should be a direct link between helping with chores in and around the house as well as educational success and the level of pocket money ‘earned’.
There are a number of different ways of doing this but I would urge parents not to allow tens or even hundreds of pounds to accumulate and languish in a dusty piggy bank. It is much better to regularly deposit some of this money into a long-term investment and leave a much smaller amount for sweets, football stickers and other treats.
How do you think teaching our children about the value of money can help us overcome pester power?
To some degree parents are always going to be seen as the villains by our children. But as with many other areas of parenting, one of the best gifts we can bestow is to gently guide our children in the right direction without being overtly seen to do so.
This is why when it comes to learning about the value of money, we should start from an early age and then we must trust them to make their own decisions. This will inevitably mean that they will make some mistakes, but as long as they believe they have an open financial relationship with you, hopefully you can help them before it becomes too problematic.
What are some of the biggest mistakes parents make on the topic of money and kids?
Too often I’ve seen parents who’ve tried to shelter their children from money. Instead, it creates a time-bomb which normally goes off as they start work or leave home and are suddenly exposed to relatively large amounts of money without the basis of firm foundations.
For example, student loans, many young adults are led to believe that this is a sensible option to help out with higher education. Many, however, do not think about the future and how long it will take to pay off this debt. Many young adults see this as “free money” and teaching children from a young age about financial debt will help people make a more informed decision when it comes to loans and University.
If there was only one thing you could say about teaching children the value of money it would be…
It’s never too young to start…and if you have older children, it’s not too late!
Anything else you would like to add?
We need to empower children and give them the skills and knowledge they need to grow into adults who worry less about money. The attitudes children develop towards money during their early years can have a profound impact on their later lives. As parents, it’s crucial that we take the opportunity to prepare them financially for adulthood. The Kids’ Money Matters report from Orbis Access shows that children are not destined to be bad with money – quite the contrary.
How do you go about teaching your children about the value of the money? Do you already do any of the above? And what do you think of these tips if they are new to you? Do leave a comment and share.
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