An article by the digital editor of Financial Times Money, Lucy Warwick-Ching, provides a useful reminder about the emotional energy and power of money. Lucy’s piece draws on a number of research studies, including a recent HSBC study which questioned 2000 parents and 500 children on various aspects of financial literacy. The results point to significant gender differences, including the finding that 64 per cent of girls compared to around half of boys felt they didn’t “understand money”. In addition, while 51 per cent of boys thought they were good at managing their pocket money, just 43 per cent of girls shared this belief.
Another piece of research, by two University of Cambridge academics, Dr. David Whitebread and Dr. Sue Bingham and supported by the Money Advice Service, found that by the age of seven children have learnt, often through their social environment, certain important financial behaviours. These include how money can be used as a unit of exchange, the relationship between paid employment and income and an elementary understanding of foregoing present for future consumption.
The immediate and powerful learning point from both pieces of research is how the social context, which includes the role of external forces such as advertising, friendship networks at school and close and extended family relationships, shape and define children’s emotional attitudes and practical skills around money.
Parents who wish to raise financially literate and confident children can take a number of practical steps. These include talking about money to each other and with children, making it clear both parents have the potential to be good money managers and discussing and setting individual and family money goals. Examples include considering how family members track income and spending, discussing how they prioritise saving and investing and examining the trade-offs in spending choices (holiday versus new furniture?). They might also cover longer term goals such as thinking ahead to university study or pension planning. Once financial goals have been agreed, individuals and the family can establish an income and spending plan which they could periodically review.
Of course this is easier said than done and is likely to be strongly influenced by a number of factors. One of these is the number and age of the children. Another is the extent to which each parent is fully on top of their own money emotions and has practical money skills. It also assumes partners can talk honestly and amicably about money to each other – and assumes the family can sit down and discuss these matters without arguments.
For many families this will be challenging – but it does provide a signpost to a strategy for improving the financial education of children. Parents and carers need to begin with being honest with themselves about their emotional response to money and their practical understanding of household spending and budgeting. Then they need to reach out to their partner, discussing their individual and joint attitudes to and experiences of money. This stage will take time and might well involve overcoming conflicting viewpoints, as it is likely the gender patterns Warwick-Ching writes about in children also exist between many parents.
Recognising, challenging and changing such social norms is a long-term project. But if parents can begin to include their children in discussions around money they will be greatly helping grow the youngsters’ financial resilience and financial literacy.