We need to talk about financial literacy: things your kids should know

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We live in a strange world where, unfortunately, not many people have learned to master the skill to properly manage their own finances. Personal financial literacy encompasses a range of money topics, from everyday skills such as balancing a checkbook – to long-term planning for retirement. Although there is a movement to include more finance-related coursework in elementary, middle and high school settings – parents and guardians are the primary educators when it comes to teaching children to be financially competent.

Teaching children about financial stability and responsibilities can not only help them in their future when they lead their own personal lives, it is a great potential to change the country’s financial situation. When a generation comes along which has been properly educated about money, it means that the economy can get a very much needed boost.

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The important thing to remember is: don’t shy away from talking to kids about money. Even if you lack in confidence in how you handle your own finances, you still possess invaluable experience and perspective that you can bestow on your children. In fact, you can get to work them in order by taking advice from bookkeepers in Ultimo which can help you solve those problems, and become a positive role model for them. Children as young as 3-years-old can begin to grasp the concept of saving and spending money by simply turning your day-to-day activities into learning experiences. Every trip to the bank, store or the ATM machine can be turned into a valuable lesson.

Your children can learn to save money from a very young age if you have the right approach. They’re not usually keen on spending all the money the same moment they get it, so that’s an incredible opportunity to teach them about what they could do with the money if they saved it. The important aspect of this lesson is that they get the sense of gratification for something they bought after some time has passed (while they were saving). It’s also a good way of preventing your child of becoming an impulse buyer – try not to let them spend all their money at once, no matter how much they wanted that.

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Another example of teaching children to have a realistic approach to money is to avoid telling them you can’t afford something. Children don’t usually grasp where money is coming from; therefore they won’t understand the reasons behind that statement. Instead, tell them exactly what the money is for: for example, it has been set aside for groceries, and groceries only, and if you buy a toy or candy – then you won’t be able to cook them their favorite lunch. With that comes the talk about priorities – what comes first, and what things come as a luxury or a treat that needs to be well-deserved.

Don’t let your children become misled by what they hear from outside their home or from peers – many children often spread misinformation that can be detrimental to your teachings. Some might even say that rich people are lucky for example – which can be harmful to their opinion. If your child believes that wealth is a result of luck, then they won’t have the right motivations to handle money responsibly. Teach them that only hard work and making smart decisions make people wealthy.

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As your child matures into a teenager, you should have already established the basic principles of saving money and being financially responsible. At this point, you can open them a bank account, and it may be a good idea to give your teen a basic credit card. Teach your teenager about saving long term and how interest affects them both with their savings and their spending. It may also be a good idea to let them take some accounting lessons. It won’t be long before your child ventures into the adult world and leaves the nest, so they should be all set when it comes to being financially responsible.

We need to talk about financial literacy: things your kids should know - financially savvy teen image

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By teaching your children about money, you help them discover the relationships between earning, spending and saving. In doing this, children also begin to understand the value of money. Don’t wait too long to teach your child the basics of managing money, because it will thank you later in the future.

Compulsory financial education in schools

Over 100,000 people have now signed the petition calling for compulsory financial education in schools, which means it must be considered for a Parliamentary debate.

The petition championed by Martin Lewis at Money Saving Expert hit the magic 100,000 number last night, showing the enormous nationwide support for the campaign to help rid the nation of financial illiteracy, which can lead to serious debt problems.

(click here to sign the e-petition on the Government’s website).

This is the trigger by which all issues raised in Government e-petitions are considered for debate in the House of Commons .

As Conservative MP Justin Tomlinson has agreed to sponsor the petition, it stands a good chance of a Commons airing.

The issue is already on the political radar as over 250 MPs are part of the All Party Parliamentary Group (APPG) on Financial Education for Young People, which also calls for compulsory money lessons.

The petition also has the support of numerous consumer groups such as Which? and the Consumer Credit Counselling Service plus of course The Financial Fairy Tales.

Martin Lewis, MoneySavingExpert.com creator, says: “Thanks to everyone who’s signed the petition and played their part in putting this on the political agenda.

“Politicians of every party should hang their heads in shame. It’s a national disgrace: in the 20 years since student loans came in, we’ve educated our youth into debt when they go to university, but never about debt.”

“We’re a financially illiterate nation, with millions caught by mis-selling, over-borrowing and being ripped off. The easiest, cheapest and most important fix is to get financial education in every school.

Many wonderfully already do this, yet most don’t. The problem is unless it is compulsory, head teachers can’t focus resources to make it happen. Hopefully, this petition will be a major step to change that.”

Debate moves closer

Tomlinson, who set up the APPG, says it is vital we educate the next generation about personal finance.

He says: “I am delighted financial education is supported by so many people, and passing the 100,000 barrier on the e-petitions system is a real, major boost to our campaign.

“We are shortly set to conclude our nine-month inquiry looking at how we can deliver compulsory financial education as part of the national curriculum.

“The 100,000 signatures to the e-petition will help us secure Parliamentary time on this subject, essential for raising the profile of our report with key ministerial decision makers.”

Financial education was due to become part of the curriculum underthe previous Labour Government when then School’s Minister Ed Balls, along with Martin Lewis, launched the proposals in January 2010.

However, as those plans were tied in with sex education, they were scrapped because of the row over teaching sex to kids ahead of last year’s General Election.

 

7 Essential Components For Financial Literacy

At the Financial Fairy Tales we welcome the news that the UK Government has begun a consultation into creating a compulsory Financial Literacy curriculum. Here we have an initial 7 points that are essential financial skills that all young people should leave school with.

1. Manage your money. Show your money who’s boss by putting a money management system in place. Divide your income into separate jars, money boxes or bank accounts. Take a proportion and save it. Take another and allocate that for investing. Then work out how much you need to spend on essentials. From the remainder you can put some aside for fun and leisure.

This simple system has several powerful principles, paying yourself first, creating a savings habit and being organised with your money and to spend less than you earn and invest the rest.

2. Know the true cost of buying on credit. The availability of easy credit has become a part of society. Don’t be tricked however into taking the short term view that the headline monthly payments are all matters. Buying an average car for example at 10% APR over 3 years could mean paying over £5000 extra. If that was the sticker price of the car then you may not be so keen to buy. Also consider that your circumstances may change, would you still want to be saddled with monthly debt repayments if you lost your job?

3. Be in control of your outgoings. The simple process of checking bank statements and credit card bills can ensure that you know where your money is going and can check for mistakes and anything suspicious. You may have unwanted direct debits which relate to cancelled agreements, such as gym memberships or mobile phone insurance. If you track and classify your outgoings, you may find that you are spending hundreds of pounds on lunch and coffee which you could bring from home.

4. Understand the financial realities of home ownership. For the majority buying a home is the biggest financial purchase of their lives. Many young people however are poorly equipped to understand the process or the numbers involved. It can be explained by imagining a dream home and then working backwards. With many lenders looking for a deposit of 20%, the prospective home owners need to first consider where they can obtain this and how long that might take. Then they can consider the amount of borrowing they can obtain, be that 3 or 4 times salary for example. Thirdly include the additional costs of insurance, utilities and council tax.

For many young people this will be an important wake up call, which can have a dramatic effect on career and education choices.

5. Develop multiple streams of income. All is not doom and gloom however, for the entrepreneurial minded there are an abundance of opportunities to make money either alongside or instead of a traditional career. A hobby or passionate interest can be translated into an income earning blog or website. Existing skills and talents can be taught to others at a fee, or new products and ideas brought to market. Long term investments in the stock market or property have historically yielded good returns. All of which can combine to supplement or replace traditional earned income.

6. Invest in your own education. For many learning stops once they leave school, if not before! By continuing to learn whether its job related or developing new skills you are capable of bringing more value to the market and subsequently will receive more reward.

7. Expect the best but prepare for the worst. When jobs are secure and house prices are rising it is easy to be lulled into a false sense of security. Many people released equity from the homes to cover consumer debt, secure in the knowledge that they could meet the monthly payments and maybe even reduce their outgoings in the short term. When the economic climate changed however there was a new reality.

In uncertain times it is better to expect the best but prepare for the worst, by saving an emergency fund which could support you for several months if you lost your job or to give you the freedom of trying something new. So too is insurance important, covering sickness or unemployment. Developing multiple streams of income as outlined about is another way of spreading the risk and not being over reliant on one source.

A Quarter Of Parents Say It’ll Be Easier For Their Kids To Get Into Debt

A third of parents believe their children will be less equipped to deal with their finances than they are

Despite the credit crunch and the focus on finances the nation’s parents admit they are still worried about whether the next generation will be able to manage their own money, a new study* by M&S Money reveals today.

The research shows that a quarter of mums and dads around the country say despite the more cautious financial environment we’re now in it will still be easier for their kids to get into debt than it was for them and a third think their children will be less able to manage their money than they are.

Almost one in five (19%) say their children will be ill equipped to understand and deal with their own finances as there is simply too much jargon to wade through and not enough practical guidance in schools. 

Despite this almost a third of parents believe that imparting their own experiences can help their children learn and improve their chances.  They are confident that by being more open, than their own parents were with them, and integrating finance into the school syllabus, their children are more likely to be able to cope with the challenges of their personal finances.  A fifth of today’s parents said that their mothers or fathers had the most influence over how they manage their own personal finances.

M&S Money works with the DebtCred financial literacy project, which was established as a charity in 2003.  The primary aim of DebtCred is to prepare school pupils for university life or employment by educating about the sensible use of credit, personal financial management and the hazards of overindebtedness.  Employee volunteers from M&S Money deliver financial literacy presentations to high school students in the Cheshire region. 

Colin Kersley, Chief Executive of M&S Money, said: “Having been through one of the most complicated couple of years for family finances the importance of getting things right for the future has never been more important.  Too many of today’s parents are not yet confident about the nation’s efforts to improve financial awareness and ability for the next generation. 

“Providing practical guidance in schools as well as offering simple and transparent products is really important. The goal that our children will be more able to handle their own finances is worthwhile and one that industry, consumers and Government must work on together.”

Why we should be teaching kids about money

In this short video interview I was asked to describe why it’s so important to teach kids about money and the unique approach of Financial Fairy Tales in making financial literacy fun for younger children.

Please enjoy and add your comments below