- Help your child invest
- Teach your child to make thoughtful spending decisions
- Put your child in debt
- Look for everyday teaching opportunities
From your child’s first piggy bank to their first bank account, it’s vital that they understand the importance of financial education.
If you want your child to have a good financial education, you need to start early! You may think it’s something your child won’t need to learn about until uni or their first summer job, but learning about money from a young age will empower your child to make better financial decisions in their adult lives.
A study by Cambridge University found that most people’s money habits are formed by age seven.
Financial education isn’t just about pounds and cents, but about understanding complex systems like credit. Credit Awareness Week, held between 21 March and 25 March in the UK, is designed to help consumers better understand their credit information. With COVID-19 changing so many people’s financial situations,
The experts agree, too. Experian CEO Jose Luiz Rossi says, “As we emerge from the pandemic, with a cost-of-living crisis confronting us, credit education has never been more important. Especially when you look at the results of our consumer poll and find 73% of respondents think there is a mysterious ‘credit blacklist’ that prevents them from getting credit."
Of course, your primary schooler isn’t signing up for a credit card or applying for a mortgage anytime soon! Yet there are still fun, age-appropriate ways you can teach them about finance, including credit. Here are some techniques we recommend:
Help your child invest
It’s likely your child already has some kind of allowance, but you can make it even more of a learning opportunity to teach them the importance of financial education.
Give your child easy chores around the house, like making their bed and feeding pets. Older children can take over some complex tasks, like unloading the dishwasher or cleaning the floors. Each month, your child earns a fixed amount for doing their “job.” Then, they can choose to spend it right away or invest it!
Explain to your child the difference: If they spend right away, they can buy something they want right now. But if they choose to invest, they’ll make more money over time and can use that money for something bigger and more expensive.
This is a great way to teach your child about accruing interest. If they choose to invest, you can simply do it the old-fashioned way, and add more money to their “account” each week. (For example, if your child earns £40 in allowance in a month, you can add £1 to the sum if your child chooses to invest.) Of course, you can also set up a real online bank account for your child, so they can see their money grow over time.
Teach your child to make thoughtful spending decisions
You may not want to give your child all the details of your family’s financial situation, especially if it’s stressful. However, your child must understand that sometimes people can’t afford things they want, and you have to be careful with your money.
Next time your child is begging you for a new toy, ask them these questions:
- Do you already have a toy like this?
- How many times will you play with this toy?
- Would you rather not buy this toy and save that money for a bigger toy?
Having an open dialogue like this will help your child learn how to make wiser purchases.
Put your child in debt
Okay, we know that may sound crazy. But as you likely know yourself, it can be all too easy to fall under a mountain of debt. It can happen young, too: More than a third (37%) of people aged 18-24 have taken out loans through an overdraft, credit cards, or other sources, with an average debt of nearly ￡3,000. That’s a lot of money!
If your child wants a toy or game they can’t afford, offer to lend them the money. Give them a fixed timeframe to pay you back. They'll accrue interest each month if they don’t pay you back by the deadline. You don’t want to torture your child, so keep the interest small, but large enough that they’ll recognise that borrowing money can sometimes mean paying more back than you took out! Understanding debt underlines the importance of financial education.
Look for everyday teaching opportunities
It’s essential to integrate financial education into your child’s day-to-day life. If a friend moves to a new home, you can use this as an opportunity to talk about the process of buying a house. Share your logic when you shop at one supermarket because it’s cheaper.
Let your child watch as you pay bills online if you're comfortable. Think of finance as any other thing you teach your child—when you make it a seamless part of their life, it’s much easier for them to retain the lessons.
The importance of financial education cannot be understated. You may want to protect your child from the stress money can cause, but it’s an inevitable part of life. When your child understands the realities of money, both good and bad, they’ll be more equipped to be happier and more secure as adults—and as a parent, that’s what you want the most.