Have you ever noticed how children are taught about maths at school, but rarely get a chance to learn about money, tax, or saving? There’s a deafening lack of financial education in the UK and this could be detrimental for our little ones. Here’s why financial literacy matters and what you can do to teach your child about money management.
What is financial literacy?
Let’s start with the basics. According to the Organisation for Economic Co-operation and Development (OECD), financial literacy is a combination of the awareness, knowledge, skill, attitude, and behaviours necessary to make sound financial decisions and achieve individual financial wellbeing1. Essentially, it’s learning how to manage money, so you can save, live within your means, and reach your financial goals. The thing is, financial literacy isn’t something many people are taught at school, or even at home, so we often learn it the hard way as adults.
Why is money management not taught at school?
In the UK, only 40% of children and young people say they’ve had some financial education2 – which is very low, given that financial literacy was introduced in the UK’s national curriculum in 20143. So why aren’t we teaching kids about money management? Well, one of the main reasons seems to be time. Most schools and colleges are willing to increase their financial education offer, but in practice, timetables are already busy making it difficult to include it in daily lessons, but there’s also a lack of skills and knowledge from teachers2.
Why does financial literacy matter?
Financial education gives kids the tools to develop good money habits and skills. In fact, children and young people who have had financial lessons at schools are more likely to save up regularly, have a bank account, and be confident managing their money2. A lack of financial literacy makes it more difficult for young adults to take control of their finances. And this could have an impact on their mental health if they’re concerned about their financial situation4.
How to teach your kids about finances
If your child isn’t learning about finances at school, it could a good idea to teach them yourself. In fact, that’s how most young people in the UK learn about money management. About 75% of students aged between 15 and 18 get most of their financial understanding from home, meanwhile, 8% consider school as their main source of financial education5. So, if you want your child to learn more about finances, you’ve got a role to play. But where to begin?
Well, you could start by asking them what they’d like to learn more about. According to a recent study, the main things young people want to understand are mortgages, pensions, loans, credit cards, budgeting, and debt management, so why not tackle these topics?5 Obviously, here we’re talking about teenagers, if your child is younger, then you may want to keep it simple and general.
Money lessons can sometimes be boring, so make sure you find ways to make it more entertaining. Playing board games, like Monopoly or the Game of Life, could help them learn while having fun. You may also want to use situations with real money to show them how it works in practice. Every time you put money aside, you could show them and explain them the process. The same applies when you have bills to pay or groceries to purchase. You could also open a savings account or Junior ISA for your kid and involve them in the journey, telling them why you’re doing it and how much you’re putting aside.
With a Junior ISA, you can save or invest up to £9,000 a year (subject to change) and your child won’t need to pay tax on their returns. What’s more, everything you put in their account belongs to them and nobody is allowed to dip into their pot. The money is theirs and locked away until their 18thbirthday. Once they’re 18, they can choose what to do with their money – needless to say, with a good dose of financial education, your child should be able to do what’s right for their future.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.