Welcome to another article of HelpingKids Parent Academy. Today I want to talk about financial literacy for kids, but first a celebration. 🎉 This is now our 18th article since September 2019 and it seems we are getting a few things right. Thank you for your comments and support. As always, feel free to send us questions or topics you’d like us to elaborate on and we’ll do our best to cover those ideas.
I want to talk about Money. Sometimes a dirty word, sometimes an obsessive word, many times, a confusing topic, especially for parents of younger children who are just starting to think about financial literacy for kids.
I am aware this topic doesn’t rank very high in the list of worries for parents. In fact, it is probably more of a curiosity than anything else. Yet, money and our personal approach to it is one of the most important things that will determine our children’s future. I have heard saying that our relationship with money is our relationship with ourselves. Well, I am not so sure but definitely, it is a strong part of who we are.
In this article I want to share with you:
1. General background ideas about financial literacy for kids and parenting
2. Thought-provokers to help you define what is that you’d like to pass to your children about money
3. Tactical ideas on how to help them learn to manage money. This part is mostly for children from 10 onwards, but I am sure you can adapt it to almost any age.
I am very open to this topic and respect equally those people who are ambitious about their financial goals, as much as those that are not motivated by it. I don’t see it as right or wrong but as an opportunity to teach other ideas.
I see money education as a way to teach responsibility, compromise, planning, decision making, and even empathy.
If you think about it, every financial decision we make will have the above connotations and much more. Buying an ice cream after school in the summer could be just a treat my teenager daughter/son chooses to do, but what happens when those treats escalate, when he or she feels she has to go to Starbucks (or the coffee chain of the day) and spend several pounds on treats just because their friends are doing it. It is not a question of money, but the thought process before spending that money.
On another level, think about children saving or raising money for a specific cause (to buy a new phone or to support a charity project). It takes planning, goal setting, decision making, and, in certain cases, a huge degree of empathy.
The decision-making process before parting with money is an important part of financial literacy for kids, what we teach our children and how it affects future decisions.
In one of the links I include below, they have the following quotes (please be aware I haven’t cross-checked them, but they make sense to me):
“Parents are the number one influence on their children’s financial behaviors”
Basically, our approach to money will dictate our children’s relationship, or lack of, with money. Nothing shocking there, parents are always the first and many times the stronger influence in our children, but an important reminder.
“Children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service revealed that kids’ money habits are formed by age 7.”
Again, not shocking as we know that our children’s personality is almost fully formed by the age of 6. However, it is interesting how wide an effect it can have.
Considering these ideas, it makes a lot of sense that we take some time to think about money.
Many of you are thinking: darn, my kid is 10, I blew it by now? Or “my kid is only two, I don’t have to worry about this for a while.
In both cases, it’d be better to consider your views. In the first case, because, as a life coach for children, I believe and see every day how we all can change and learn differently. In the second case, because the sooner you start thinking about financial literacy for kids, the easier it will be.
In the following part of the article, you will read a lot of ideas for your children. I would like you to consider them also for yourself. Remember that your relationship with money is their first influence. Basically, you have to talk the talk and walk the walk.
So, up to here, the general ideas on Money. Again, not a concern at the same level of anxieties or challenging behaviour, but an important concept nonetheless.
And now, we start with the part defining what is important to us (and hence for our children) about money.
When I was in the corporate world, we constantly repeated the concept of starting with the end in mind (From the 7 habits of highly efficient people, Stephen Covey). I still use it for a lot of my work and in this case, it is a great example of how to use it.
How do we begin teaching financial literacy for kids?
So, starting with the end in mind, fast forward a few years. If your child is below 10 years old, fast forward to when they are fifteen. They start socialising, their demands are more specific (and expensive), the peer pressure is affecting them, they are becoming independent persons. Maybe they have organised fundraising activities for charity or even they have got a job (babysitting, dog walking, chores around the house or for neighbours, etc).
If your child is in the teenage years, take them forward to their early 20’s. They might be living by themselves. They are either in higher education or working. They organise their meals, laundry, etc and social interactions (trips, concerts, evenings out) are a massive part (in time and importance) of their life. again, they will have friends with more and less money, they will see people with expensive clothes and people who can’t go out every evening as they don’t have the cash. You might be their source of income, a complement or they are managing fully by themselves.
Once you have made a picture of what could happen (remember, this is guesswork, only to help the next part), now think about what is important for you to teach your child about money. How do you want him/her to react to money, money issues, wealth, unexpected circumstances etc.
Place them in different situations and see what comes out. Put yourself in the good, the bad, and the ugly of situations. Think, how would you like your child to respond in those situations. Furthermore, think about how you react and see the pattern emerging.
Here are some ideas for developing financial literacy for kids
· How important is it to save money?
· How do you go about saving?
· Do you save for a short-term reason/goal?
· Do you save for security? (you never know when you’ll need extra cash) or because you have extra cash?
· What happens when they ask for their birthday as a very expensive present?
· How do you want them to understand the concept of value?
· Do you prioritise their satisfaction (getting the present) or the money spent?
· Do you give them a budget to think about?
What about their relationship with their peers and money?
Their friends all (it’s never all but they will claim they are the only ones who don’t have it) have the latest phone/shoes/clothing brand.
· What would you want them to do?
· How would you want them to think?
· what would you like them to say to their friends?
· Their best friend’s birthday is coming. This friend is very important for them and they are looking for a present.
· How do you support them on the money front?
· Give them a budget?
· Look for what is right?
· A combination?
· Want to impress their friend with a great present?
· Or think it’s better something personal with a nice handmade card?
Perhaps financial literacy for kids can develop through games.
They are into a computer game and stuck in one level, they can easily do it by spending money on certain gadgets, or they can work themselves through it. They have tried several times and failed.
What is the reaction you’d like them to have?
Imagine them receiving a small but meaningful amount of money.
What would you like them to do with it?
How would they use it?
Treat themselves because they deserve it, go on a trip of a lifetime, save it, save part and treat themselves to something smaller, invite their friends out…
Now, a more left-field idea. Imagine money was a person. How would this person behave, what would this person do, where would be this person’s priorities. What type of things would this person do in his free time?
One thing I have learnt after 10 years of coaching children and parents, is that many people don’t practice the strategies we develop. I wouldn’t be surprised if the vast majority of you don’t do the above exercise. It is fine, but I also know that if you have read so far, you will think about financial literacy for kids. That’s all you need.
Take a bit of time when on the bus or the car or walking the dog to think about it. We don’t need a lot of time, just a few ideas and you’ll be able to form yourself with your own concept of money and understand if that is the one you want to share (pass down) with your children or you need to make some changes yourself.
Maybe you only need one of those questions above, take that one and explore it.
And this part concludes the second area I wanted to share with you: the thought provokes.
Finally, as I said at the beginning, I wanted to share a simple approach that I believe has helped my own daughters and many others. If you have read any of my previous articles, you know that no idea will work for everybody. Hopefully, you will get the important concept behind it and take it or adapt it as you see fit.
Again, there is a lot of information online about pocket money, when to start giving it, how to do it (a fixed amount, based on chores, etc).
I personally think that before the age of 11, the children can get the concept of money, saving and decision making in a general way. Financial literacy for kids will be influenced by the talk and behaviour you display.
It is normally between the age of 10 and 12, when children are about to move to secondary school when they will start managing their own money. It is also here when independent, decision-making and responsibility towards their “income” becomes important.
At this time, parents are faced with important decisions. Do I give them money, how much, what is included in that money, what if they ask for more money. Do I give them money once a week, once a month, or as and when they need it? As before, my job is not to tell you what to do, but to expose you to ideas so you can make your own choice.
An approach that I like for financial literacy for kids is the following:
We start with defining the weekly amount of pocket money you can provide to your children. Be mindful of their lifestyle and how much they truly need. Include what areas of spending are their responsibilities (treats and special purchases) and which ones are yours (i.e. birthday presents for friends, school/sports equipment, etc.
Once you have done this, have a conversation with them. Tell them that they are old enough to manage it and that you trust them to make their own choices. Be also clear on what is included and not. If needed, write it on paper. Likely, you won’t get all the eventualities. When new occasions happen just think for yourself and tell them whether it is within their responsibility or yours.
I recommend then, to open a bank account just for this, set up a direct debit for their allowance, and ensure they have a debit card they can use. Most banks will offer this for young people and you will have access to their transactions. In the UK, when the kid is over 13, they can have direct access to their transactions. At this time most kids will have a smartphone and can download the bank’s app. This is a hugely important part of the process. They have the money, but they also have the mechanism to track their expenditure. It is important they take ownership of this with the full resources.
When they get extra money (birthday, Christmas, etc), ask them (or strongly suggest) if they want to put it in their account so they can keep track. It is very important you also consider how relatives or other adults might be affecting the learning of financial literacy for kids. Sometimes we have “uncle or Auntie” who will give them money for no specific reason. Ensure your children can share that with you as it might mean they are finding themselves with too much money for your goals.
Now, they are ready to start using their money (or not). Give them two or three weeks of no control whatsoever (the card won’t allow them to spend more than they have). After this period, simply ask them: how are you getting on? How much money do you have left? How have you spent the money?
Some children will be able to give you full detail of their expenditure. Others will be very vague, and a few will avoid the topic altogether. This is a very important part as you will start noticing their default approach. Are they keeping track, do they even bother about it? And you can check if those approaches are aligned with what you want them to learn.
Repeat that conversation every week or every other week. Talk to them casually about it, if they go out, ask them how much they spent and how that computes with their allowance (i.e. well if you went to the cafe and spent £2.95 in there, that is more than half/third/a fifth of your allowance, how are you going to get by the rest of the week?).
So far, this will only prepare the groundwork for financial literacy for kids. The interesting conversation happens when there is something they really want and they don’t have money, when they run out of money altogether, or when they are stopping themselves from doing things because of money.
These are the important talks. Whatever you do, be mindful of rescuing them. If you step in, they will likely create the idea that mum and dad’s bank will be there. You will not allow the learning to happen.
Some kids will ask you permission to get a job (or will find a way to get money). Again, that is another decision you might want to help them make. Is it right, is it the priority, what implications it has in their social, academic, and personal life?
I wish I could explain all the possible eventualities, but we would be here forever. Also, I don’t think you need it if you have done your thinking and thought-provoking about how you want to teach financial literacy to kids. It will not give you all the answers, but it might give you the criteria to make the decisions.
I now want to leave you with a personal story.
My daughter, 14 at the time, was not much into saving. She would manage her money, don’t ask much but wouldn’t have much in case of “need”. One day, while doing the supermarket shopping, I asked her:
Me: how are you doing with your money?
Me: how much do you have?
Her: I am not sure
Me (thinking): hmmmmm what’s going on here. Alarm bells are starting to show
Me: well, you have your phone. Why don’t you check?
Her: I will later at home when I get wifi
Me (thinking): ok, this promises to be interesting. Alarm bells are all going now.
Me: It won’t take much, please do it.
Her (moaning and not wanting to do it, eventually caves in)
Her: I have £7
Me: oh… as it is Saturday morning, you got your direct debit for £5 yesterday and you didn’t go with your friends, it means you had £2 in your account.
Me: oh well. You better think about it.
I was tempted to give her some money. I didn’t want her to stop doing things with her friends or to feel less than them. But I didn’t do it. She didn’t ask for it either which was very encouraging. She blew it up but owned it.
Now, the not-so-clear part.
A couple of days later, we met the lady selling their Big issue in a supermarket close to our house. I frequently stop and have a chat with her. I was walking with my daughter. When the lady sees us she says: oh, this is your daughter? I didn’t know that? She is so nice, every time she sees me here she asks me if I want something. She gets me a chocolate bar or something. She is so nice.
And that’s when I melted.
I struggled with the decision. She has to own/manage her own money, but she is also showing generosity and not even asking for emotional credit from me. I had no idea she was doing this.
I then opted to top her account a bit, ensuring she knew it was because of her good heart and generosity. We still had a chat about her managing her money and she came across as a lot more conscious of the need to do so.
I found that this process was a huge learning for them as well as for me. It has clearly opened conversations that we wouldn’t have had if it wasn’t for it.
And that is for me in this article. I hope you enjoyed it and gave you some food for thought.
As always, please take the ideas and adapt them to your situation. There are many ways of going about any topic, the important part is to be clear on what you want them to learn and how you contribute to it.