In today’s guest blog, Kirsty Bowman-Vaughan, Children and Young People Policy Expert at the Money Advice Service, discusses the Service’s report into the financial capability of children and young people.
We’re thrilled to be releasing today’s report. Our aim was to provide a comprehensive overview into the way that Britain’s children and young people approach money management – what they do well, where there’s room for improvement and the role that parents and others have to play in helping the nation’s young people manage their finances.
We got some fascinating results that really helped broaden our understanding of the most pertinent issues around financial capability for children and young people. One of the most important points to take away from the findings is that parents are leaving it too late to start engaging their children in vital discussions and decisions around money.
Our existing research showed us that some behaviours and attitudes towards money can begin to be ingrained from as early as age seven. That means that it’s vitally important to start engaging with children before this point – ideally from as young as age four.
The report showed that children who didn’t have a say in spending their own money were substantially less likely to save. Of 12 – 17 year olds surveyed, when asked how they would manage if given £100, those whose parents decided how their money was spent were likely to save the smallest amount (£53.65). This, compared to those whose parents included them in money discussions, who were likely to save an average of around 20% more.
This group were also more likely to choose unnecessary purchases over essential expenditure. The survey asked children aged four to six to choose between buying a toy and buying lunch. 30% of children whose parents decided how they spent their money chose the toy, compared to 17% where the child decides how they spend their money.
Finally, these children are less likely to be confident in managing their money. Only one in three (35%) whose parents made money decisions for them said they were confident in handling their finances.
That might sound early. And no parent wants to ruin their child’s younger years by berating them with finer points of credit management or explaining the different types of mortgages. But we’re not asking people to do that. What we’re encouraging parents to do is to start giving their children experience of decisions and discussions around money management in an age-appropriate way.
That might mean something as simple as letting them physically pay for something during the weekly shop. For really young children it can even mean just letting them handle money, getting them used to the value of coins and notes.
To give children responsibility in spending, give them freedom to spend a small amount of cash. If you’d normally spend a couple of pounds on a treat for them when you’re shopping, give them the cash instead of choosing for them. Explain that they can pick what they like, but when the money’s gone, it’s gone. Giving them this freedom – to make decisions (and mistakes) can lay the foundations for good financial management when they grow up. It might seem like a small step to take, but giving your kids this experience can be just as important as physically saving up for them in adulthood.