How to teach your children about money
Britain has a financial literacy problem, but should pupils be burdened with budgetary pressures, asks Sam Meadows
One in four adults struggles to calculate change in a shop, a third are unable to add up the cost of items unless clearly spelt out, and half of grown-up Britons can’t read a line chart. This recent research from the University of Cambridge has highlighted a problem with financial literacy, prompting academics, politicians and teachers to warn that better knowledge is needed to prevent people falling into debt.
Some believe that the problem starts in schools. Personal finance has been part of the national curriculum only since 2014, when it was added by Michael Gove during his stint as education secretary.
But how soon is too soon to learn about compound interest? Though some argue that financial literacy is paramount, others are concerned about a world in which our children are placed under ever greater pressure – exacerbated by tougher exams and social media.
Should an already-burdened 10-year-old have to worry about pensions, investments and life insurance, for example?
Simon and Lucy Baxter have started giving their daughters, Evie, 14, and Freya, 12, more control over their spending.
The family uses an app called nimbl, which gives the girls a prepaid debit card connected to an account that the parents control. The couple put £25 into each account every month and let their children decide how they spend it.
Mr Baxter, a 48-year-old primary schoolteacher, said: “I think, like lots of parents, we were just spending money on them and they didn’t really see where it came from. When you’re a child things just happen and you don’t really think about the money.
“At school if I get out a £10 they all say ‘wow’. They don’t have any concept of how much that is.”
He said Evie and Freya have become better at handling their finances in the time they have been using nimbl. “The first time my youngest got her allowance, she spent it all within a few days and was asking for more,” he said. “Now they’re starting to think a bit more when they get £10 for their birthday – ‘what do I really want to spend this on?’.”
The girls also have an Isa each and Mr Baxter shows them the statements every six months to encourage them to think about how money grows.
He is aware that his children will need to understand more about complicated finances before long. Many young people today will take out the second biggest loan of their lives (after a mortgage) as a teenager, when they go to university.
Today’s students will graduate with an average debt of more than £50,000 and have a student loan with a fiendishly complicated rate of interest.
As Evie begins to think about university, Mr Baxter has tried some novel approaches to teach his children about more complex finances. When one of the girls asks for the next month’s allowance in advance, he agrees on the proviso that they receive £5 less, in a bid to simulate the costs of borrowing.
“It is difficult to find the balance,” he said. “We would never let them go without, but it might be that if they’re going swimming with their friends we only give them the £3.80 it will cost rather than £10.”
As a teacher, Mr Baxter accepts that schools could do more to help. While secondary schools have been obliged to teach personal finance for a few years now, most treat it as an add-on to regular citizenship lessons.
Martin Upton, director of the True Potential Centre for the Public Understanding of Finance, a partnership with the Open University, said it should be treated as a separate subject from the age of 14. He admitted schools might complain that they’re already overloaded on the curriculum, adding: “They might also think, ‘We don’t have people confident enough to teach it’.”
The centre recently launched a programme, in conjunction with Martin Lewis of Moneysavingexpert, providing online courses to help young adults understand money better. It uses examples that teenagers can relate to: insurance for mobile phones rather than a home or car. Lesson material is also provided for teachers.
Mr Upton said the question of how soon to explain specific money topics to children was a difficult one. “I don’t think you should shy away from talking about these things if you can contextualise them,” he said.
Another charity that takes a slightly different approach to financial education is Redstart, which has provided financial education
workshops to more than 3,000 children and young people in the UK.
Tom Pilcher, from the organisation, said children younger than 13 needed a more general approach based on explaining the general concept of ideas such as compound interest and risk and reward. Older children should try to understand specifics.
Pre-teens are given a certain amount of “money” to “invest” in different games around the room. A tower-based activity aims to teach about compound interest, while kids learn about taking risks by throwing darts at a board.
Mr Pilcher said: “At the younger ages it can be as simple as getting a message across that saving your money will pay off in the future.
“They don’t need to know the ins and outs of how a pension works, but they do need to know why saving might be a good thing to do.”
‘When you’re a child things just happen and you don’t really think about money’