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how should kids learn about finance?

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Is there an adult anywhere in the world who doesn’t have an opinion on how kids should be brought up?

As I’m fond of informing people when they ask me whether I’d give up work if I had children, I don’t really like kids. Truthfully, it’s more that I don’t particularly like kids, they are just people - some you like, some you don’t. Not having, wanting, or even liking sprogs doesn’t stop me having an opinion on how they should be brought up. Nothing particularly detailed and more a sort of idea of what they should turn out like, rather than how you go about doing it, but still an opinion nonetheless. And, I bet I’m not the only one.

Just to try and restore any vestiges of respect that any parents reading used to have for me, I’ll say that the one thing that most concerns me about kids growing up in Britain today is that they are the unhappiest children in Europe. I think that’s appalling, and whatever we’re doing, we need to start doing it better.

my childhood finances

When I grew up, from about the ago of maybe 7 or 8, I had infrequent pocket money. For quite a few years the rates were 10p per year of age. I think when I was about 11 or 12, it increased significantly to £2.50 a week. The pocket money was used for primarily for sweets, magazines, and other small purchases plus trips to the nearest shopping metropolis. I also had a bank account (because my dad was a bank manager) and sometimes larger sums of money sometimes went in there.

At the age of 16, when I finished compulsory schooling and no longer had to wear a uniform (which was brown by the way, I’m scarred for life), I had an allowance of £40 a month to cover clothes, books, going out, and everything fun. For various reasons - including laziness - I didn’t have a job, so once I was 17 most of this money was actually spent on driving lessons, and I cut back drastically on everything else.

how much did I learn?

Fond as I am of my parents, I think their approach was rubbish. I’m not a natural on delayed gratification, and it didn’t teach me to save. I still don’t really know how to save up for things, but I work with that and simply put the money out of sight, and then surprise myself with it later. I did learn how to get by without things, as I never had any money for decent clothes, but sadly I’ve ended up not wanting to do that now I have my own money. The final problem was that the general impression was that pocket money or allowance weren’t really mine. They weren’t very regular, and since I didn’t know how to budget I was never sure of having any money - my youngest siblings have the same problem now.

The other reason that I think this approach was rubbish is that I know that I’m the only one of us kids who isn’t trying to pay off credit card debt and who has a sensible approach to money. That’s not because I’m great, it’s because I have money/security issues, without those this blog would probably also be about getting out of debt because I’d be in it up to my eyeballs.

if I was in charge

I think it’s really important to teach kids about money. If I was in charge, they’d have a regular allowance or pocket money from an early age. Teaching saving is pretty difficult, you’d need to give the kids enough money that they could save up for something decent within a few weeks - maybe the idea of compounding interest weekly or monthly would help in that respect.

I’m torn on the idea of compulsory savings, as in you will save 25% of your allowance. It feels to me like it might not help kids learn to choose to save. Because of course, parenting is about ending up with sensible adults, who will save (and invest) even though no one is making them.

Budgeting is harder still, maybe it’s a good idea to give older kids the food money (or a portion of it) and let them shop with it - I’d have loved this as a kid by the way. It needs to be something where they are forced to make choices, which you could help them with, so it only works if there’s enough money being handed out that it’ll cover more than the absolute basics, and there are several different things that they can do with the money.

If saving and budgeting are challenging for kids to learn, then sensible investing is even worse. Once you’ve got your head around how long it takes to notice results with compound interest you’re away. But truly sensible investing only takes place over timescales of longer than 5-10 years, which for many kids is literally a lifetime. Stockpicking random companies that they like isn’t really teaching them anything - maybe the problem is that I think investing done well is actually pretty boring.

over to you

Now, I’m hoping to never be in the position where I need to put any of my ideas into practice, but some of you have kids and all of you were a little kid once. Tell me your thoughts on educating kids in personal finance in the comments below.

Image by Sukanto Debnath

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12 comments for “how should kids learn about finance?”

  1. I never learned about budgeting either. But that’s because my parents don’t. Which is interesting because my dad has debt and buys shiny things, and my mom has oodles in investments (but also buys shiny things).

    So I suspect it starts to become more of an attitude (or respect?) that needs to be instilled at an early age, as opposed to any sort of specific activity that needs to be taught.

    Posted by deepali | July 18, 2008, 1:50 pm
  2. I don’t think my mom and dad ever sat me down and taught me about looking after my money- I just picked up being careful with money from the way they were, and I’m quite grateful for that.

    My kids are quite young, but I’m thinking how I can teach them about the value of money - I think we’ll start giving our 5 year old some pocket money when he’s six, but try to get him thinking about saving rather than sending. With doting grandparents he tends to get pretty much what he wants, so I want him to value what he gets a bit more.

    Posted by Rob Lewis | July 18, 2008, 7:52 pm
  3. I learned a lot about personal finance from my parents. They actually never sat me down and taught the principles - I learned by just watching them lead a very financially literate life. Kids learn more from what they observe than from what they are taught…

    Posted by Sandy Naidu | July 20, 2008, 6:53 am
  4. I’m with Sandy- I don’t remember ever sitting down with my parents and discussing money, but they were good with saving and avoiding debt and I have picked that up too.
    I think regular pocket money makes sense, I seem to remember mine was fairly regular, although I can’t remember how much it was. There was no enforced saving or giving, but certainly they did reiterate that if I wanted x or to have spending money on holiday then I should save it. They also were quite encouraging for me to donate any I wanted to whatever organisation.
    Regarding budgeting, we did this in home economics classes, go round a supermarket, mark down what food we would purchase for a week, tally it up and see if we could afford it based on the budget we had come up with in class.
    It’s an interesting topic, one I hope never to deal with either. By the way, my uniform was maroon and navy and I had to wear it until I was 18, (there was a pinafore until I was 15!) so you get little sympathy from me!

    Posted by Looby | July 20, 2008, 4:22 pm
  5. @Looby:
    I’m firmly of the opinion that brown is worse. But I have to admit that your uniform sounds hideous. That home economics class sounds like it was interesting though.

    Posted by plonkee | July 21, 2008, 8:22 am
  6. I once read raising kids as “raising future adults.” It is all too easy to be distracted with arrangements that work for now, but might not work later in life (for example, requiring forced saving vs. letting a child go without because he didn’t save up for a game, trip, car insurance, etc).

    Our approach is to introduce our kids to the realities of life sooner, rather than later because life involves hard work, saving, and thrift. A significant allowance can be very discouraging for teenagers who are perfectly able to earn money for the things that they want.

    Posted by Aaron Stroud | July 22, 2008, 7:51 pm
  7. Great article. I wrote a similar post on this recently when thinking about how I want to educate my son. Here are 3 basic aspects you need to teach them as I see it:

    - The value of savings
    - The value of investing
    - The value of information and learning

    Posted by Andy | July 25, 2008, 8:02 pm
  8. My parents also did a terrible job of teaching me about saving and budgeting … but they really ever talk to me about money other than to tell me that I should save it. They never helped me open a bank account and the allowance I “got” was always in credit form - never cash (as in, we go to the store and I pick out what I want and they buy it for me).

    I think that taking your child to the bank and helping them open an account, and taking them with you to deposit funds, is one way to get them excited to put more money in the account. And reading the statements to see how the money grows on its own.

    Posted by Maggie | July 28, 2008, 8:55 pm

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