Although money has a huge effect on our lives, people often shy away from talking about it. Talking about money and letting financial education begin at home, writes JONATHAN HOLLOW, could be the key to ensuring the next generation have a better relationship with their money.
I was recently talking to a friend who was doing a stock-take of the money they have available for the second half of their life. It’s looking good, and just how good came as a very pleasant surprise. They talked about reaching this state by accident rather than by design. But the conversation went deeper than that. They talked about constant feelings of guilt and worry about money throughout adult life. These feelings held them back from analysing their money plan too carefully, for fear of what they would find.
And they traced these feelings back to messages, explicit and indirect, from their parents about money.
It’s a conversation I’ve had with a number of people my age. I call it the “dark matter” effect of money. Dark matter is a component of the universe whose presence is detected from its gravitational attraction rather than its luminosity. Similarly, rather than shining a light on money, many people in the previous generation talked about money very little … but their lives were conspicuously shaped by its effects, good and bad. And so the next generation began to be shaped the same way.
Money shouldn’t be “dark matter” for today’s children. But where do we start with financial education? How can we make it easier for the next generation to deal with money?
Think of an age, then halve it
There’s an excellent evidence base about money and children from many countries around the world, including the UK. When I worked at the Money and Pensions Service (MaPS), some of its most thorough analytical work was done in this area. I would boil down the conclusions of all this work to five simple findings.
The first two findings were about when and where children should learn about money.
- The younger you help children to think and learn about money, the better. Life-long attitudes in really important areas start to form in children far earlier than we expect. The vital area of self-control is forming in children by the age of three. Then between the ages of three and seven, children intensively explore the world around them, soak up attitudes and messages from their parents, and form important conceptual frameworks. Many practical discussions about financial education in schools focus on secondary education. But I always say, if you are wondering what age to start teaching a child about money, think of an age — then halve it!
- Don’t leave it to teachers. Lots of great financial education work is done in schools. Unfortunately it reaches less than half the children across the UK. Aside from the fact that children are more influenced by their parents than their teachers, if you are hoping that a teacher will take up the slack, you’ve not even got a 50/50 chance of being in luck. And don’t forget, teachers are all … everyday adults. Depending on the area of money management, anywhere between a fifth and half of adults struggle. Teachers struggling with money will find it hard to leave their issues behind when they enter the classroom.
The final three headings are about how children should learn about money in the home. And they are really simple: talk, handle, give control.
- Children who were more successful and knowledgeable about money had parents who talked to them about it. It sounds so simple, but given that many adults don’t talk to each other about money – sometimes even adults married to each other — there’s plenty more work to be done to normalise conversations about money.
- Children who did better with money had parents who let them handle it. Most adult money is becoming more and more virtual and invisible, so take the opportunity to let kids handle money while they can. And they should handle it with a purpose, because …
- Children who did better with money had parents who gave them responsibility and control over it. This could be pocket money. But it doesn’t have to be. Children could be given control over an element of the household budget. For example, they could be tasked to find ways to reduce household energy use, then trace the effects on money going out. Real responsibility shapes attitudes towards money.
All the evidence I saw showed that if parents regularly do these three things with children, from an early age, they are banishing the “dark matter” effect of money. The benefits of financial education will set children up for a better future.
Saving and caring
Beyond the strict evidence, though, I want to bring in two thoughts from Robin Powell’s excellent recent podcast with children’s money author Will Rainey. Will has written “Grandpa’s Fortune Fables”, a book full of metaphors, stories and exercises about money. It would be a stimulating and fun accompaniment to the principles I’ve set out above.
I especially liked two ideas from this interview.
The first was Will’s emphasis on saving. He suggests that for every £1 your child receives as pocket money, they should get in the habit of consciously saving 10p.
A key conclusion of MaPS financial research when looking at adult financial capability was that regular saving (no matter how small the amount) is a key measure for many other positive indicators to do with money. These indicators included positive attitudes to money, control over money, and better understanding of financial rules and principles. However, it was never certain whether this was cause or effect. Do people have positive attitudes to money because they save, or do they save because of these positive attitudes?
Even if we don’t know, it can’t hurt to encourage children to adopt such a valuable habit. As Will says, if they start saving early enough, this will shape what they do with every salary payment in adult life. So among other things, this is what their pocket money should be used for.
The second was his emphasis on caring. Money is there to help other people, he says, not just to gratify ourselves.
To that end, he proposed a brilliant idea. It combines so many of the threads I’ve set out in this article, it’s truly irresistible.
Will suggests that you give children a supermarket challenge. Get them to collect as much dry and tinned food as possible, within a set sum (he suggests £5). With more than one child involved, this is a fun competition. You then buy the food and donate it to a food bank.
For this exercise you must talk about money, you must give control, the children can handle the money, and it teaches them about money as a way of caring for others.
It’s not a “one and done” exercise. Teaching children about money is a long-term project. But it’s a great idea, especially for the tough times we are about to enter.
JONATHAN HOLLOW worked for the UK Government’s Money and Pensions Service and is a writer and commentator on consumer education and protection.
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