How to protect the next generation from financial disaster

Debt crises, financial crime, old age poverty, losing a home, even the impact of the odd fallen star fund managers.

These problems and many more besides are all too often met with the same horrified moan by those facing severe restrictions to their lives today and their hopes for the future: “I didn’t realise. I didn’t understand.”

It is immediately followed, understandably, by calls for greater information, clarity, transparency and education.

In a bid to level the playing field, campaigners have been demanding better financial education in schools for decades and they’ve had some success with money matters now, theoretically at least firmly on the curriculum.

Next week marks My Money Week, a seven-day stint of all-important activities in primary and secondary school around the country designed to give school leavers skills, confidence and, critically, knowledge of all sorts of everyday money matters that could make a huge difference to every stage of their futures.

But worthy though it is, a few pertinent classes in school is not going to fully armour the nation’s kids against the marketing spin, complex products and even illegal activity of those whose business it is to make money by taking theirs.

Nor could they hope to provide the be-all and end-all in financial empowerment that could mean the difference between a life of getting by and a life of fulfilled dreams.

For that, despite one in 10 parents saying schools should be entirely responsible for teaching their kids about cash, family has to be firmly in the picture too. (Not least because numerous studies show that if you improve the financial education of a child in a household, the entire family gains vital skills by osmosis.)

The problem is that only 6 per cent of parents learned about money in school. While most were taught by parents or other family members, a fifth of today’s parents said nobody ever taught them money lessons – they had to work it out for themselves.

So if you already feel like you’re on shaky foundations, here’s how to start teaching your kids about money this summer.

Getting the ball rolling

Crucially, if there are two parents at home, teaching should be a joint task. Single parents could rope in the support of a friend or family member willing to help guide children through real-life scenarios. That way children don’t grow up thinking budgeting, financial planning and other money affairs are the job of one parent or the other. Everyone is responsible for their money.

Start young

Children begin learning about the value of things very early, progressing to monetary value far sooner than many family members realise. And if they’re not learning financial skills from their parents, they’re learning from adverts and peer pressure.

Between the ages of four and six, just over a quarter of parents say their children are spenders, and just under a third say they’re savers, but as they go through their childhood, the temptation to spend grows, so that by the age of 16-17, 37 per cent say they’re spenders.

It’s therefore important to start talking to your children and letting them make decisions about money, even before they start primary school.

Get them to prioritise

“Sensible spending and saving comes down to our ability to prioritise, and the best way to give children a chance to develop these skills is through pocket money,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“We found 62 per cent of parents said they give their kids pocket money – at an average of £7.50 a week. Not only does it encourage them to learn how to spend on the most important things – and the perils of spending without planning, but it also stops them pestering you to buy treats at every turn.

“As they get older, you can give them an allowance instead, to cover costs like their mobile, new clothes and going out. By gradually increasing the scope of their spending decisions, you’re effectively preparing them for the day they have to balance their budget alone.”

Give them a stake

The most effective way to bring money lessons alive is to give them a stake. The good news is that most parents already do this: our survey showed that 68 per cent of them save for their children, and on average they put away £55.30 a month.

“Some 57 per cent give their children hands-on experience with this money by putting it in a savings account in the child’s name,” adds Coles.

“Another common approach is to save in your own name for the benefit of children – 25 per cent put money into savings for their kids and 4 per cent use their own ISA allowance. While this is a useful way to keep control of some of the money you put aside for children, it’s vital that this is alongside savings they can manage themselves.”

More details, specific lesson ideas and general guidance around teaching kids about money can be found here.