Why financial education is so important for young people

Where should children learn financial skills and money management?

If a recent survey is to be believed, most parents think that it’s the responsibility of schools to teach basic financial skills, and an overwhelming majority think that these subjects should be added to the curriculum.

94% of UK parents in the Portafina study want their children to be taught more financial skills at school, while almost three-quarters of parents quizzed believe their children would benefit from learning about issues such as pensions and saving at secondary school.

9 in 10 parents believe it is a school’s role to provide financial education

Although most parents want their children to learn financial skills, nine in ten of them don’t believe it is their responsibility to teach financial management, and that it is a school’s role to provide this advice.

The study also revealed that more than two-thirds of people say that learning about money at school would have helped them in later life. The top five financial skills that British parents wish they had learned at school are:

  • What a pension is and what the future benefits are (32%)
  • Basic budgeting and financial management (28%)
  • Ways of saving (savings accounts, ISAs etc.) (28%)
  • General investment knowledge (27%)
  • How interest rates work (23%)

The Personal Finance Society Education Champions scheme

To help improve financial literacy among young people, the Personal Finance Society (PFS) has launched a nationwide initiative to teach basic skills in secondary schools.

The ‘Education Champions’ scheme aims to provide complementary financial education for teenagers and young people, and it is hoped that it will ultimately become a key part of the national curriculum.

The initiative aims to establish an active link with every secondary school and college of further education in the country. More than 250 financial advisers and planners registered an interest in becoming a volunteer trainer within the first two days of the scheme being announced.

The PFS has created four financial education workshops in collaboration with the financial education provider ‘Young Money’. These initial lessons will cover:

  1. My future finances – the value of everyday expenses, setting long-term goals and evaluating these goals according to a range of incomes
  2. Staying safe from scams – how to recognise different types of scams and taking steps to avoid becoming a scam victim
  3. Moving on from school – explaining a payslip, how income deductions work, how to calculate gross and net income, and how the government uses taxes and National Insurance Contributions
  4. Making decisions and risk – understanding financial risks, why people take risks with money, the difference between ‘low’ and ‘high’ risk, and how insurance and other methods can be used to protect against financial risks.

While these sessions are set to help young people improve their financial skills, there are also steps you can take as a parent or grandparent to help a child to learn more about money. Here are a few suggestions.

5 important things you can teach your children or grandchildren about money

1. Spending vs saving

One of the simplest lessons you can teach children is about ‘spending versus saving’. Do they spend their cash immediately, or save up to buy something more valuable?

Gary Edwards, founder of primary school financial education firm Keep On Squirrelling, says: “Our mantra is keep half, spend half. This is something children can apply now, as they do not have the large outgoings adults may have. If they carry this principle into adulthood, it will transform their life financially.”

2. Compound interest

Albert Einstein once famously said: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it.”

The idea of earning interest on interest can be hard to understand, but, when explained, it can help children to think about saving long-term. This is particularly important when they start to think about putting money aside for their retirement.

3. Money is earned

One of the most important lessons to teach a child is about the value of money. One way of doing this is to ensure that children earn any money that they receive, meaning they make the link between working and earning.

Becky O’Connor, Personal Finance Specialist at Royal London, says: “Don’t give pocket money without requiring your child to do something for it.”

4. Long-term saving and pensions

In a similar vein to teaching a child about compound interest, you can show them the difference between long-term savings and cash investments. For example, show them how much better a pension fund has performed than a savings account.

Don’t forget that you can even set up a pension for your child or grandchild. You can pay up to £2,880 each year into the pension of an under 18-year-old, and with the £720 tax relief the pension provider claims from the government, the pension fund could grow by £3,600 every year.

Bear in mind that the child won’t be able to access the pension until they come to retire later, meaning they can’t cash in the fund to put down a deposit on a home, for example.

5. Manage expectations

A Halifax survey of 1,000 schoolchildren found that many of them overestimate the salaries of certain professions. For example, they thought that teachers earn £140,000 a year and police officers £165,000 a year, when the reality is that starting salaries for these jobs is around £23,000.

Becky O’Connor from Royal London suggests that you should give children examples of people they admire and earn a lot to help them understand the concept of commitment and hard work. “After all, Lionel Messi didn’t earn his money watching TV all day,” she says.