Don't Bank On It

3rd July 2015

When it comes to pocket money, British parents are doling out an average of £6.35 a week, up 462% on 1987 – and that’s without counting payouts from grandparents. They may have deep pockets, but is the next generation equipped to spend sensibly? Jennifer Lipman investigates.

Aside from the savvy sorts who’d haggle with the tooth fairy, financial prudence is not something children necessarily just grasp. “Ask kids where money comes from and they say mum’s purse or the hole-in-the-wall machine, with no comprehension of how it gets there,” recalls Daniel Bitton, founder of educational organisation Financial Fairy Tales. “Kids think winning the lottery is a viable plan.”

According to research by Sheffield University’s Dr Karl Taylor, almost a quarter fail to save any pocket money – harmless when they haven’t got any bills to pay, certainly, but old habits die hard. He points to a correlation between youthful thriftiness and the amount adults save. “Shaping the financial behaviour of children may have long lasting effects,” he says.

Studies suggest children form attitudes towards money as early as seven. So, as Lily Lapenna, founder of enterprise education programme MyBnk, notes, “the earlier a young person engages with something like a bank account, the better equipped they are to handle it in the future.”

And gone are the days when they were merely buying sweets; modern children can run up huge bills on online games in minutes. “Young people are exposed to financial decisions at an increasingly younger age,” says Young Enterprise Chief Executive Michael Mercieca, pointing to the complexity of the student loan system. “Early intervention is key.”

Few might disagree with that, yet financial education is not compulsory in primary schools, meaning that children may be 11 before the subject is raised. Last year it was included on the secondary syllabus, catching English kids up with Wales and Scotland, albeit not those at free schools. The citizenship curriculum states that teaching should enable children to ‘manage their money well’, and in maths, schools now have to include topics such as budgeting. Yet as Mercieca says, there’s still no consistency; “schools are at different stages in their provision”.

“It was announced with fanfare, but in reality not a massive amount has been included in the curriculum,” adds Bitton. “It’s not going far enough and it’s not early enough.” Equally, provision is not tested or monitored, making it less of a priority in the busy timetable. “It’s seen as a bit optional”, he says.

Others worry that the provision doesn’t deal effectively with real-world issues, with Emma Horne of Action for Children warning that debt is becoming increasingly normal among the under 25s “but young people do not understand the risks”. She wants to see targeted support at those who are already more likely to experience financial difficulties. “They are often forced to become independent younger than their peers and are less likely to have support.”

Of course, it’s at home that children really relate to money, witnessing saving or spending first-hand. “Financial education is not just about learning at school,” emphasises Giles Martin, Head of Halifax Savings, quoting research suggesting that three quarters of children are aware that their parents have money worries. “It’s so important that families talk about money and finances together.”  

Parents are advised to take advantage of ‘money moments’ in everyday life; paying the electricity bill, accepting a gift from granny, or deciding whether a BOGOF [buy one, get one free] represents good value. Bitton suggests using a family holiday to bring up ideas around budgeting and currency. The advantage is that the conversations can be low-risk; a discussion about cost and value, rather than an argument over the loss of a pricey possession.

Partly, it’s about setting a good example; if you pay your bills promptly, chances are your offspring will recognise the importance of this. And beyond that, says Dr Taylor, having the conversation is what counts. “Talking to children about financial decisions might be more important in influencing children’s behaviour than the actual financial decisions made by their parent.”

Equally, it’s about preparing for the day they fly the nest. “Eighteen-year-olds living independently for the first time receive quite a shock when confronted with the realities of managing a household budget,” says Lapenna. Parents need to demystify this in advance, sharing their strategies for saving money etc.
As with issues around sex, parents can’t assume their kids will just find their feet. “We live in different times,” Lapenna points out. From the demise of the local bank manager to more flexibility around pensions, not to mention a generally higher cost of living and the growing complexity of financial products, modern money presents a lot for a young person to contend with.

Thus it’s key to make managing money not just something for adults, whether that’s giving them access to plastic (crucial given that we are facing a cashless future) or a personal bank account to monitor. Pocket money is the obvious starting point – if kids don’t have funds of their own, they’ll never learn how to handle financial choices. ”It’s a great tool to start these conversations,” says Martin. “Encouraging them to save up their pocket money has the potential to set behaviours that last into adulthood.”

Generally, parents are advised not to offer extortionate allowances; Dr Taylor’s research found that the more cash children get, the lower the probability that they save it for a rainy day. But it’s not about a ‘correct’ amount; what matters is making sure children understand how to manage what they’ve been given.
And while parents can’t always control what money reaches their child by way of relatives, they can at least ensure pocket money is conditional, by making it a reward for a household chore, or factoring in opportunity to earn more. “Kids see that there’s an exchange – that they’ve done something and received something. That sets a really good precedent,” says Bitton.

Part-time jobs such as babysitting or checkout work are likewise a good introduction to the realities of budgeting, at a time when they don’t have to worry about bringing home the bacon. Legally, youngsters can’t work part-time before the age of thirteen, and if your child does get a part-time job, it’s advisable to investigate the rules around minimum wage and hours. But, assuming the job passes muster, says Mercieca, it’s worth encouraging. “It’s a way of introducing the concept of responsible earning and saving,” he says.

It’s also good preparation for adult life, building confidence in teenagers, helping them to interact with the outside world, and teaching them vital soft skills. That sits at the heart of the issue; financial education is not only about scaremongering – it’s also about what Bitton calls “the entrepreneurial message”. He thinks schools should teach about business leaders who started out as teenagers with paper rounds or on eBay. “It is not just about preventing kids getting into debt, but also about possibility.”

Ultimately, financial education shouldn’t be an add-on – because knowledge of money is a crucial life skill. “Financial literacy puts people in control of their money, rather than being controlled by it,” says Lapenna. “These life-long skills just require an early investment.”

As those in the sector point out, there is simply no good reason the subject isn’t taught from primary school, nor for not giving teachers better training. “There is a strong case for improving financial education,” emphasises Horne. “We can make a real difference. But to reach beyond the home and school, we need governments and professionals to think more broadly.”

After an election dominated by questions of financial prudence, it remains odd that teaching children about money isn’t more of a given. “I don’t like to preach to anybody what you should or shouldn’t do to your money, it’s about creating awareness,” says Bitton, “It’s like warnings on cigarette packets. If you want to smoke you will, but at least you’re aware of the health risks.”

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