September’s here and the new school term looms large.
And with it the end of summer. A prospect that can depress adults as much as the phrase ‘back to school’ freaks out the kids. One subject that’s likely to be missing from your child’s curriculum this autumn is ‘financial studies’. That would cover:
- - How to handle money
- When to save and how much
- Expensive mistakes to avoid
And the ultimate wealth manifesto: “It’s not how much you earn, it’s how much you keep”.
At Sheconomics we feel strongly about the lack of financial education. Oh, if only we’d had financial literacy classes at school. There’d be far fewer credit card dunces naively making minimum repayments. We’d be on time with our homework, starting pensions at 20 rather than 40. And we’d all be getting full marks for our wise investments.
But as a parent there are things you can do to make sure your child doesn’t get an ‘F’ for finance.
Here are 3 vital lessons for kids of different ages:
LESSON for the under 5s: IT PAYS TO WAIT.
We are turning out a have-it-now generation. The psychologist Walter Mischel from the US showed how important it is to learn to delay gratification. He gave four year-olds a choice. They could have one marshmallow now. Or they could have two if they waited 15 minutes. Only one in three of the children he tested could hold out for the extra treat. When he followed all the children up at aged 18 the ones who’d waited were the ones who were also the academic high fliers. But children can be trained to wait. By saving treats for special occasions. By saving up for big purchases. Most financial disasters are the result of an impulse and inability to wait. And research shows that adults who can transcend impulsive urges are more likely to be high achievers.
LESSON for the under 10s: THE THREE-POT METHOD
We love the save-spend-share idea behind the moonjar - a three-sectioned moneybox that teaches children that money isn't just for spending. As soon as your kids get pocket money, or birthday money, suggest they divide it between the three pots. Then they can spend some on themselves but also put some away for a rainy day. A third portion is for sharing, either by giving to charity or buying something for somebody else. This imparts some valuable lessons about money.
LESSON for the over 10s: THE MIRACLE OF COMPOUNDING
Understanding compound interest is key to knowing how debt can get out of control. And, conversely, how savings can grow year on year.
Simply explain to kids that when someone else, like a building society, looks after your money for you they give you a bit of extra money at the end of the month (or year). It’s called interest.
In the second year, if you leave it there, you get interest on both your money and on the interest from the first year. In the third year you get interest both on your money and on the first two years' interest. Imagine you have a tiny snowball and roll it in the snow, that’s the way compound interest can turn a small amount into something much larger.
HANDS UP if you need to swot up on how compound interest works – fool.co.uk has some handy revision notes suitable for grown-up kids. And, of course, we make finance simple and have tons of tips for teaching kids about money in Sheconomics.