As a finance educator, I worry when I hear that parents feel more comfortable discussing the impact of drugs with their children than money skills. This is often because they feel unqualified to talk about it: how do you pass on money skills you weren’t taught?
Schools are reportedly trying harder to implement it into the system, but are limited by a lack of training, resources, and time. As a result, a lot of young people's financial education comes from the internet. While this is an invaluable and extensive resource, it can be overwhelming, and requires understanding of data sources and reliability, especially when faced with adverts and banks forcing finance products on impressionable minds.
You really can play a valuable role in helping your children understand finance, even if you don't consider yourself an expert. Here's my guide:
How do you begin?
- Find an ‘ok’ time. (There's never a perfect time, so just choose one that feels relatively calm)
- Grab a pen and paper for questions you can’t answer straight away. Coming back to them is a great chance to open conversation #2
- Bring an open mind. Your money habits may not be aligned with those of your children, so be understanding
- Have confidence. You know more than you think, and you know more than your children
Conversation starters:
1. Reports don’t stop when you leave school: credit reports stay with you for life
A credit score is a reference number associated with your credit file. When it comes to applying for mortgages, loans, or even credit or store cards, banks will review your credit file to see if you are a reliable person to lend money to.
It is only in hindsight we realise the choices we made as kids – taking out that second credit card or failing to pay our phone bill one month – could have such a negative impact on our file.
There are some simple, yet relatively unknown, ways for young people to boost their score:
- Have their correct name on their phone bill
- Start with a credit-building credit card
- Never take out cash from a credit card
2. Good budgeting habits can last a lifetime
How do we manage our money to ensure we have enough left at the end of each month? A budget should start with collating all your income, from jobs to birthday money, and then distributing it out. Doing this will stop you spending money you don’t have and even help prepare for emergencies.
I like the 50/30/20 rule for splitting your income: 50% for necessities, 30% for nice-to-haves, and 20% for investing in ‘future you’.
3. Have a positive money mindset
Money mindsets develop early. Young people absorb our words and read our body language around money, therefore remaining open and honest is important. Understanding the ‘whys’ behind your spending habits is a great place to start, to ensure any bad money habits you may have picked up aren’t passed on.
4. Managing debt vs avoiding it
What is debt? The word frequently invokes fear and negative connotations and results in individuals expending more effort avoiding it than managing it.
Explain different types of debt, including student loans, credit cards and even 'buy now pay later' schemes (these have featured in credit scores since August 2022), and how they can positively impact your finances.
5. Taxes are inevitable, and why paying a lot is not always a bad thing
How closely do you scrutinise your payslip? Many of us just zoom in on the net pay figure, but they hold so much more financial information, including tax codes and national insurance (NI) contributions.
In my workshops, I decode a standard payslip line by line, explaining each element, plus why an NI number is unique and the difference between gross and net salary.
(If you'd rather not show your children your actual payslip, contact me and I’ll send you the mock one I use.) Try to use visuals as much as you can: it's a brilliant way for many to learn, and makes the intangible more tangible!
Without a doubt, passing down good money lessons to the next generation will have positive effects on society. We hold their hand as toddlers to help them cross the road, so why not also hold their hand on their financial journey?
Elent is the brainchild of ACA chartered accountant Abigail Foster. It's a financial education company which runs workshops for schools and businesses, teaching subjects we wish we’d learnt at school like ‘how to read a payslip’ or ‘understanding pensions’.
To find out more, visit Elent or email abi@elent.co.uk.
(Above: Abigail Foster, founder of Elent Financial Education)
