Money is a sadly essential part of our lives, and it’s never too early to start learning about its value and how to manage it via practical money skills. As a parent or carer, you’ll likely want your children to grow up to be financially savvy and responsible adults. But how do you get them there?
Well, the answer is simple: by actively teaching them practical money skills and problem-solving strategies from an early age. These skills are essential for navigating the complex financial landscape we live in, and they can have a profound impact on your child’s future success.
Whilst this article will mainly focus on worldwide research, according to a recent survey from the UK, only 57% of parents feel or carers feel confident or like it’s their responsibility to teach their children about money management. Many parents are unsure of how to start, what to teach, and when to begin – often leaving it to the teachers and practitioners in schools and nurseries for fear of doing the “wrong thing”.
In this article, we’ll dive into why teaching children about money matters and the benefits of practical money skills for kids is so vital. We’ll also cover the importance of problem-solving skills for children and how they tie into financial education. By the end of this article, you’ll have a simple understanding of manageable, small steps to raise financially savvy kids who are equipped to handle whatever financial challenges come their way.
Why Teaching Children about Money Matters
Teaching children about money is not only important in the short term but also has long-term implications for their financial well-being. Studies show that children who receive financial stimulation and encounter money-related problem-solving early on are more likely to make better financial decisions later in life. Financial literacy for kids and children worldwide is becoming more critical, especially given the current economic climate, where money management is more important than ever. If children can’t develop the basics early, it sets them off on the wrong foot for having to solve issues with debt, investment, and budgeting for the essentials from their monthly wage once working.
Waiting until later in life to teach children about money can, with no pun intended, be a costly mistake. A study by the National Financial Educators Council found that those who received financial education before the age of 18 were more likely to save money, pay off their credit cards, and invest in their futures and retirement. On the other hand, those who did not receive financial education were more likely to make poor financial decisions, such as carrying high credit card balances, and not saving for retirement.
Financial literacy rates among children and teens worldwide are alarmingly low. In a survey conducted by the Organisation for Economic Co-operation and Development (OECD), only 12% of 15-year-olds worldwide demonstrated a baseline level of financial literacy. The survey also found that girls and children from lower socio-economic backgrounds had lower financial literacy rates. These statistics highlight the need for more financial education for kids and children worldwide to empower them to make sound financial decisions throughout their lives.
Whilst you’d expect the education system to take on some of this strain, the nature of the education systems around the world and their governmental expectations means it’s not always at the forefront of lessons taught. This is why teaching kids about money is essential for all parties involved to play their part – without parents, educators, and policymakers worldwide on the same page, financial literacy will never increase. If you’re reading this article, you’re most likely looking for ways to provide financial education early on so your children can develop good financial habits that will serve them well throughout their lives. Let’s move on to see if we can unpick practical money skills a little more…
Benefits of Practical Money Skills for Kids:
Teaching children practical money skills has numerous benefits that can positively impact their daily lives and future success. So let’s first look at the key rationales for developing these skills.
Develop responsible spending habits: By learning how to manage money effectively, children can develop responsible spending habits that will stay with them for life. They’ll be better equipped to make wise financial decisions, avoid unnecessary debt, and save for their future.
Boost independence and confidence: Financial literacy empowers children to take control of their own finances and become more independent. It also instils confidence and self-assurance, as they learn how to navigate the financial world with ease and an awareness of the dangers, pitfalls and risks.
Strengthen problem-solving skills: Managing money requires strong problem-solving skills, which can be developed through practical money lessons. Children can learn how to identify financial challenges and come up with effective solutions, which can be applied to other areas of their lives as well.
Improve academic performance: Studies have shown that children who receive financial education tend to perform better academically, perform better in standardised testing and access better colleges and universities. This is because, in a similar way to developing a love of reading early in life leads to written competence, practical money skills require mathematical and critical thinking. This, in turn, can improve overall cognitive abilities.
Increase future earning potential: Financially literate individuals tend to have higher earning potential over their lifetime. By teaching children practical money skills, you’re setting them up for financial success in the long run.
In the UK, there are several real-life examples of how practical money skills have helped children become more responsible, independent, and confident. For instance, schools across the UK have finally started to incorporate financial education into their curriculum (budgeting, stocks and shares, investing), resulting in children developing a better understanding of money management. As a result, they are better equipped to make informed financial decisions, such as saving for university or buying a car. Additionally, some UK banks have started offering savings accounts, cards and fintech apps specifically designed for children, which can help teach them the importance of saving money from an early age.
Overall, teaching children practical money skills can have a profound impact on their present and future success, making it an essential aspect of their education.
Building Strong Financial Foundations
Building a strong financial foundation is essential for children to become financially savvy adults. By laying a solid financial foundation from a young age, children can learn how to manage money, budget, and save effectively. This not only helps them develop good financial habits but also sets them up for future success.
A strong financial foundation consists of several key elements. Firstly, children need to understand the value of money, how it works, and how to use it responsibly. Secondly, they need to learn how to budget and manage their finances effectively. This includes tracking income and expenses, setting financial goals, and prioritising spending. Finally, children need to understand the importance of saving money and how to do it effectively. This includes opening a savings account, setting savings goals, and understanding the concept of interest. Once they’ve mastered this, they should be ready to look into wider financial lifestyle ethics, such as the FIRE movement (Financial Independence, Retire Early).
As a parent, there are several tips and strategies you can use to help your children build a strong financial foundation. Firstly, start teaching them about money management from a young age. This could include playing games that teach them about budgeting and saving or giving them a weekly allowance or pocket money to manage. Secondly, lead by example and practice good financial habits yourself. Children learn by watching and emulating their parents, so if you’re financially responsible, they’re more likely to be too. For example, if your visiting a supermarket, make a decision to model to your children not to give in to peer pressure spending to buy the latest over-priced item advertised on TV. Finally, use real-life examples to teach financial lessons. So, again when grocery shopping, explain how you make choices based on price and quality, or when paying bills, show them how to budget for monthly expenses.
By building a strong financial foundation from a young age, children can learn how to manage money effectively, budget, and save for their future. As a parent or carer, you play a critical role in teaching them these important skills and setting them up for future financial success.
Start Young: Age-Appropriate Money Lessons for Kids:
Teaching children about money should start as early as possible to ensure they develop good financial habits from a young age. By tailoring the activities to their age group, children can learn about money management in a fun and engaging way. Here are some age-appropriate money lessons and activities for children from preschool and nursery to high school.
For preschoolers, basic concepts like the value of money, counting, and simple transactions are key. Activities like playing with toy cash registers, pretend shopping, and counting coins can be fun and engaging for this age group. An affordable way into this that is sustainable and avoids a massive outlay on toys is considering a toy subscription box for a fraction of the RRP of toys and games. Whirli is a great example of a company offering educational toys for younger children at great savings.
For primary school children, more complex concepts like budgeting, saving, and earning money can be introduced. Activities like opening a savings account, starting a piggy bank, and earning money for household chores can help them understand the value of money and how to manage it responsibly in a world where inflation can really impact what you choose to buy.
As children grow into their teenage years, more advanced concepts like credit, debt, and investing via free stocks and shares can be introduced. Activities like setting financial goals, developing a budget, and drafting a small business plan can help them learn important life skills that will serve them well into adulthood. By starting young and building on previous knowledge, children can develop strong money management skills that will benefit them for years to come.
Encouraging Saving Habits: Strategies and Tips
Saving money is a critical aspect of financial competence, and it is never too early to start. Encouraging children to save money from a young age can help them develop good financial habits that will benefit them throughout their lives. Saving money can also help children learn about delayed gratification and the importance of planning for the future. Parents can teach children about saving money by setting an example, giving them an allowance or pocket money, and helping them set savings goals.
One of the best ways to encourage saving habits is to create a savings plan with your child. This plan should include a specific savings goal and a timeline for achieving that goal. For example, if your child wants to buy a new toy or video game, you can help them create a plan to save up for it. You can also set up a savings account for your child and show them how to track their progress towards their goal. Other strategies for encouraging saving habits include incentivising saving by offering to match a portion of the money saved or providing small rewards for meeting savings milestones. One example of this is encouraging saving for the future in aJISA by “match funding” your child, i.e. – whatever they save, you match. The bonus of using an ISA is the compound interest will boost this further for their future.
Setting Financial Goals: Teaching Children to Plan Ahead
As a parent, you can help your child set financial goals by first discussing their wants and needs. Talk about what they would like to purchase in the short-term and long-term, and help them prioritise their goals. Encourage them to take stock of their material possessions and what truly matters to them. Once you’ve identified the goals, break them down into smaller, more manageable steps. For example, if your child wants to save up for a new video game, you can help them set a savings goal and then help them figure out how much they need to save each week to reach that goal. If they have possessions, toys and clothes that are no longer fitting, needed, or in use, maybe they could sell these at car boots, garage sales or online via eBay, Facebook marketplace or Gumtree (with your support if younger).
Setting and achieving financial goals can help children develop important life skills, such as patience, discipline, and persistence. By learning to plan ahead and make smart decisions, children can become more confident and independent in managing their finances. Additionally, achieving financial goals can give children a sense of accomplishment and motivation to continue making smart financial decisions in the future. Using sites like Gumtree to resell also gives children an understanding of what others value something at and encourages the concept of bartering.
Source: Savvy Dad.