Children are growing up in an increasingly complex world, where they will eventually need to take charge of their own financial future. According to the Organisation for Economic Co-operation and Development, financial education should start earlier than the age of 18.
Young children who start learning their numbers come to understand money through observing the people closest to them.
“If a child understands what options they have when it comes to money, they may make more informed choices later on in life,” says James Williams, Head of Marketing for Wonga. “Establishing simple routines can give children an opportunity to practice life skills, like planning a budget and saving their income.”
“From an early age, you can help your children learn and understand the concept of earning, spending, sharing and borrowing money,” explains James. “This doesn’t happen all in one go, but there are age-appropriate money lessons that you can apply starting from around the age of around five years old.”
Here are some guidelines on fundamental financial lessons:
1. Foundational skills
Around the age of 5-8 years is when parents start giving their children pocket money, whether it is routinely given or earned from helping out with small tasks around the house. With that comes the first lesson, learning what to do with their money. Helping a child identify goals, and how they can structure their spending and saving, is key.
Around the age of 9-12 years is a good time to start involving children in decision making processes. When out shopping, they can be taught about comparative pricing, for example, the variance between generic and branded products.
2. Learning how the world of money works
Following this stage, money lessons can start to shift to showing the difference between short term money saving goals and long-term goals. This is also the ideal time to talk to teenagers about compound interest.
Williams suggests that parents can allow their child to gain some experience spending money that they earn from an allowance, a part-time job, or doing chores.
3. Understanding credit
Managing money and finances isn’t a main focus at a large number of schools and it often falls almost entirely on parents to talk to children managing finances in their personal lives. It is particularly important to explain to older children or teenagers about credit and explain how it works, before they start signing up for their own credit accounts.
It is also important to explain the benefits of a good credit score to teenagers. This opens up opportunities to secure better interest rates, obtain approval for loans in the future and improve their chances of getting other credit-based applications approved.
4. Forming healthy financial habits
Teaching your child how to budget for regular loan repayments, understanding how debt and interest can accrue, and avoiding penalty fees can assist them in forming healthy financial habits.
“The aim is to guide children in how to manage their money better, to ensure that they prioritise their spending where it’s needed most,” James says. “This helps them to avoid the burden of bad or unmanageable debt and safeguard themselves against risks to their financial security in the future. There are a number of ways in which financial literacy can help you to take control of your finances.”
For more information on money matters and how to handle your finances, visit the Wonga Money Academy
[This article was written and provided by Wonga]