Teaching children all about money makes a lot of sense, as early lessons can be formative for good, lifelong habits. In fact, the Money Advice Service found that children’s spending behaviours can be set for life from as early as age seven.
Children do learn the basics of money in school, but the National Curriculum doesn’t always cover every aspect of finance. As a result, there may be some key money lessons missing from your child’s education, making it all the more important for you to help them build a healthy relationship with money.
This doesn’t mean bombarding primary school-aged children with details of ISAs and pensions. Rather, it could simply be helping children learn and internalise a good attitude towards money, introducing more complex topics as they get older.
Here are five money lessons that children should know by the time they leave school.
1. The difference between saving and spending
A good starting point for young children is discussing why you need to both save and spend your money.
Children understand from as early as age three what money is and how it works. This makes it easy to explain that some money has to be spent on essentials to live, such as on food and your house.
Teaching a child about saving is equally simple. Most children have a concept of deferred gratification, even if it’s just being told they can’t have a certain toy until their birthday or Christmas.
As a result, they’ll easily be able to grasp that to buy more expensive things they want, they have to save up their money over time. This is a good opportunity to introduce the idea of the things you “need” versus the things you might “want”, and why you have to prioritise your needs first.
As long as it’s explained in a way that they understand, young children will hopefully hang onto these lessons into adult life.
2. How to budget and what debt means
Once they have an understanding of saving, the next lesson children need is what budgeting is and why it’s important.
Budgeting is essentially just their maths lessons in a practical sense: you receive a certain amount of money each month, and you need to spread it across different areas. This is a good chance to emphasise the difference between wants and needs, explaining that the needs always must be paid for first.
Budgeting is a fundamental habit so teaching children early is the best chance of them internalising it for life.
For older children, this is a good stage to discuss what debt is and why it can be a negative thing. You can keep this fairly simple, as there’s no need to dive into the details of interest rates or credit cards.
Give them a basic explanation of how you may have borrowed some money as you may not have had enough. Also explain that you’ll have to pay it back, with an extra cost to pay to the person who lent it.
3. What a pension is and why it’s important for your life
Pensions are slightly more complicated than regular savings, but older primary school and early secondary school children will still likely be able to understand the concept.
It should be fairly straightforward for them to understand a pension as a long-term savings pot that they’ll be able to use when they’re older.
It’s key to emphasise that it’s important; explain that pensions are intended for a time when they’ve likely stopped working, so having money to live off is vital.
Other key pension facts everyone should know when they leave school are:
1. There’s a difference between a state and private pension.
2. The government encourages pension contributions, giving you tax relief on them.
3. Your employer will pay in too.
Teaching children about pensions early is also a chance to discuss investments more broadly. Again, you don’t need to go into detail on how the stock market works. A simple explanation of what it means to make an investment, and how it can rise or fall, is more than enough.
4. How a mortgage works
Lessons about mortgages are vital, as most people will need to use a home loan at some point in their lives.
Mortgage lenders, mortgage brokers, interest rates, product fees, loan-to-value (LTV) and repayments will likely have an impact on everyone. That’s why an understanding of each of these concepts, no matter how basic, is so key.
An easy description of a mortgage is that it’s a specific type of loan designed for home buying. From this point, explaining the other factors that impact a mortgage are a lot easier. For example, once you know what a mortgage is, LTV makes a lot more sense.
Comparatively, mortgages are more complex than some of the other money lessons out there, so may be best reserved for older secondary school kids.
5. The importance of good financial planning – and knowing help is out there
Most of all, everyone needs to know that good financial planning underpins everything they learn.
It’s all well and good to understand saving and spending, or how a mortgage works, but knowing how to plan your finances to help you live the life you want is arguably the biggest lesson children should retain.
Everyone entering adult life should know that help is out there, too. It can be reassuring to know that services like financial advisers and planners are available, and on your side, if you ever need help.
Want to know how to best use your money?
If you’d like to know more about how to manage your money, please get in touch with us at Cordiner Wealth.
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