Starting early: Financial literacy lessons for children

Few will disagree that financial literacy skills are a major component of a successful and secure adult life. Parents undoubtedly want to raise financially empowered young people who can take their steps into adulthood with confidence and who have the ability to make good investment decisions to achieve their dreams.   

So should money matters be left to accidental learning or conscious parenting? Research tells us that parents are a child's key educator when it comes to their own future money habits and should be keenly aware of the role that they play. While many may feel they lack the tools, insight or the confidence when it comes to a deliberate approach to financial learning, the good news is the opportunities to make a real positive impact are broad and can start anytime with conversation.  

Why it's important

The American Psychological Association's research continues to recognise money as the most cited source of stress. While sources of financial stress can be broad, prevention is always the best antidote. Entering adulthood with decision-making confidence can have a huge compounding effect when the impact of time is factored into the equation. It is a truly valuable foundation from which to leapfrog. Good decision making and participation in investment early on can lead to a more satisfying life and ultimately less stress.

When we think of financial literacy learnings for children and young people, the mind likely goes to a picture of a piggy bank and perhaps several piles of carefully stacked coins. Concepts such as budgeting, goal setting, saving and being prepared for a rainy day are, of course, essential core learnings for adult life which parents often deliver via pocket money.

The scope of financial literacy can certainly also extend well beyond the traditional concepts when really taking stock of daily decision making – how we assess value, prepare for unforeseen events, exercise social responsibility, understand our consumer rights and translate global economic events are some examples. Below is some further food for thought:

1. Navigating a complex landscape

Financial literacy is vitally important, perhaps now more so than ever, as the financial landscape continues to evolve (the range and complexity of financial products and services is ever widening). This can demand a higher base level of understanding in a range of financial contexts. Age appropriate discussion with kids around things like conflicts of interest, assessing value and influence-advertising can be important in an environment where choice seems only to be increasing. Spending time talking about the importance of seeking out relevant information, comparing alternatives, knowing what questions to ask and where best to ask can add to real life insight. I wrote here recently about research which indicated that of people who had sought financial advice, the majority looked to friends and family primarily. Achieving better outcomes and net results might mean paying for professional unconflicted services, so identifying trustworthy sources of information or advice can also form part of the learning.

2. Using technology

A strong school of thought suggests children may better grasp the value of money when dealing with actual cash rather than money in the digital form. Young people today will undoubtedly be part of an increasingly digital world, so embracing technology in teachable moments may be far more relevant. The great news here is that the opportunities are aplenty. Using an online savings account for the savings portion of pocket money will allow children to grasp banking concepts and applications and see compound interest at work. Involving children in online grocery shopping creates great opportunities, for example, in working closely to a budget and differentiating between needs and wants. Furthermore, there are plenty of mobile apps (some specifically designed for children) and online calculators with great visual outputs. From working to a saving goal to illustrating the effect of discipline through the magic of compound interest, many can really effectively supplement the delivery of a message in an engaging manner.

3. Being business savvy

Financial literacy will also encompass awareness around the entrepreneurial and vocational sense. As the landscape continues to evolve, kids of today will need to demonstrate their worth and competitiveness in employment or business as they enter into adult life. Attaching a bargaining value to household chores can be problematic when most homes likely expect everyone to ‘chip in' and do their bit to some extent. The concept that work provides money is easy enough for most children to grasp. However, when it comes to wanting to earn extra dollars, encouraging children to assess and consider the value they can offer, as well as to negotiate and put forward their case, may be a small step in preparation for their real-world realities. Instead of financially rewarding them for two or three hours of potentially half-hearted effort, instead reward the completed ‘job'.  

Financial learning can be a lifelong process that often starts with responsible management of pocket money. As parents look to prepare children as best they can for the real world, thinking broadly about what financial literacy and competence means simply starts with more conversation and the recognition of role parents play as key influencers. The more age-appropriate knowledge and hands-on experience children accumulate in a broad set of contexts the better their future behaviors and, in turn, the higher their confidence to participate, get better outcomes and achieve lower-stress lives.

Carol Tawfik is a Certified Financial Planner and advisor with Affinity Private.