Rising debt, complex scams and an unattainable property market. These are just some of the challenges facing young adults when it comes to looking after they money and livelihoods.
And yet millions of parents and children feel woefully under-prepared. More than 8 in 10 parents believe it is their responsibility to teach their children about money, yet one in six say they don’t feel confident about it.
But how do you know what to tell them – and when?
The key is ensuring any explanations and challenges fit the understanding of the specific child. That obviously is not always determined by age but it can be a good guide to what will be most effective.
We’ve asked some of the most prominent financial companies in the country for their top tips on teaching youngsters of different ages – including their own – about money, budgeting and the importance of delayed gratification...
Charles Calkin a financial planner at James Hambro & Co and father of five, says there are ways to teach good money habits even before children are old enough to understand money. Understanding delayed gratification is vital to good money management in the future.
“When they were little they each used to have a sweet jar and were allowed on a Sunday to take only so many of them. This got them used to quotas and not being able to have everything at once. Delayed gratification is fundamental to good money management and this is a very easy way to introduce the concept.”
He also urges encouraging children to handle cash to help them recognise its value. “Even when they were toddlers we got our children to pay for things at a shop themselves. That’s quite a lot for them to take on board when they’re little but in that interaction they learned that something they wanted cost money and an exchange transaction was involved.
“They used to have a pocket money book – they got 10p a week for every year of age – and they had to sign to say they had had it. It gave significance and weight to the concept of being given cash so they didn’t take it for granted.”
7IM co-founder Justin Urquhart Stewart suggests that handling money at a young age can boost children’s academic performance too. He says: “Teaching a child how to count money not only boosts their maths skills but really teaches them about money concepts, budgeting and the value of money.
“In fact, pocket money is pointless until they can count money – but the promise of it sure is a good incentive to get kids counting that money [something many young children struggle with].”
Jamie Smith-Thompson, managing director at Portafina, suggests that play can teach children this age a lot about the daily use of money.
He says: “With younger kids, running a pretend ‘shop’ is normally lots of fun for them and you can easily introduce the concepts of value and haggling without getting all serious and sucking the joy out of it.”
Children may seem more rational by this age and to have more mathematical understanding but most people agree that they need hands-on lessons in money management. Theory is fine but actively handling money matters cements that knowledge.
Joe Green, consumer affairs spokesperson at Experian, says: “Between the ages of 7-9, children should already be starting to make spending and saving choices based on their own needs. One of the essential areas to explore is setting and working towards financial goals.
“Put simply, saving. By introducing the concept of earned pocket money, encouraging children to save some, if not all, of this money helps instil good money habits. This can be something as simple as putting a few coins in their piggybank each week towards the cost of a new book or toy.
“By the age of 11, children should be able to use simple calculations to understand other currencies, plan and manage a basic budget. A great way to help them practice, especially during the summer break, is allowing them to manage the holiday budget and currency exchange.
“Accompany children in an online search to find out how many euro/US dollars etc. they would receive for £1, then help them work it out for £50. Let children accompany you to currency exchanges to see the money change hands.”
Rose St Louis, savings spokesperson at Zurich UK, says now is the age to teach children good monthly money management. This can be done by encouraging them to manage their own finances better but also involving them in family budgeting.
She says: “Teaching your children how to budget will help them apply the same approach when they are older. Helping them to set aside a certain amount every month – much as you will be doing – will not only give them a lesson in budgeting but also teaches them the value of the items they’re buying.”
This budgeting can also extend to managing the household’s energy consumption, particularly if you have a smart meter that shows how much power is being used at any one time.
Sarah Scrivener suggests: “Encourage your kids to be energy zappers, getting them to run around the house switching off lights when they don’t need to be on.
“Set them deadlines for completing levels when playing games on their devices, and get them to turn off the TV when dad falls asleep in front of it. If they can help you save energy at the end of the month, they can have a treat.”
By the time children are young adults it is time for lessons to become more practical. Craig Fiddes, spokesperson for Ikano Bank, says theory alone is not enough.
“Most young people already have access to all the maths knowledge they need. In theory they can learn to work out percentage rates and interest payments, for example. But it’s another thing to apply that to the real world.
“Parents can help by giving their children exposure to money issues earlier – starting by paying a little pocket money for helping out with household chores, and moving on to putting the onus on teenagers to budget for their own social events and shopping trips.
“Schools have a very different role, in particular in giving a structured environment to talk about the financial products like savings accounts, loans or mortgages that people will face as adults. But when young people can bridge the gap between formal and practical day-to-day advice – when lessons are put in terms of real practical scenarios – that’s when we really see the penny drop.”
The message for parents is clear. Financial education is essential to their children’s future security and wellbeing. It should start young and remain a focus until the youngsters fly the nest.
As you might expect, Simon Healy, managing director of savings at Aldermore, started encouraging his children to set their cash aside at a young age.
“In the run-up to our family holiday to Walt Disney World, I saw an opportunity to teach my two children (aged 9 and 11) the importance of saving. A few months before we were due to go, I explained to both that I would double any pocket money they saved for our holiday where they would be free to spend this money on whatever they wanted.
“This generated enough excitement for them to sacrifice the usual weekend activity of spending all their pocket money straight away. Instead they both tried to save almost every penny they had and as a result, they felt the full satisfaction which came from having worked hard and having been patient. They were then able to buy something exciting and enduring rather than sweets and small things that are quickly forgotten (the conversion to dollars also helped them feel that they had more).
“Having experienced it first hand, hopefully they both learnt the importance of saving and the benefits it has in the long run, rather than just focusing on the short term.”
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