How to Raise a Financially Literate Child

The following is a short excerpt from my book BETWEEN: A Guide for Parents of Eight to Thirteen Year Olds:

Arguably, the way we, as parents and carers, handle our own finances – the example we set to our tweens and what we teach them about money – will be the strongest influence on how they handle their own personal finances as they grow. I’ve always found it strange, and a little worrying, that this area is omitted from school lessons. After all, it’s something we all need to understand as adults and yet our tweens and teens are so ill prepared. I thought I had done a pretty good job when my children were small, until one day, at a festival, my then six- or seven-year-old pointed out a cash machine with a ‘Free money withdrawals’ sign. He called me over and said, ‘Look, Mum – they’re giving away free money. Quick, get some out!’. I spent the next half-hour explaining bank accounts, credit and debit cards and cash-machine withdrawal fees to him, pointing out that sadly, it wasn’t the money that was free, but the withdrawal.

Fast-forward a couple of years and I was sitting in the living room watching TV with another of my sons. An advert came on for a home-equity-release company. My son thought it sounded like a great idea and suggested that we should call the company and request they pay us some money. It took several minutes to explain to him that it wasn’t quite as simple as calling up and requesting free cash.

The financial pitfalls of the modern-day world are complex and many. From understanding payday loans to interest-free credit purchases, buy-now-pay-later schemes and companies offering to buy any vehicle (for considerably less than the market value), there is an urgent need for our tweens to understand the financial world they are about to enter into. And yet there is so little formal schooling on these issues. It’s vital, then, that parents and carers themselves raise their tweens with a sound financial education.

What does your tween need to know about money?
The best way to discuss money with your tween is to bring it up in discussions that happen organically – say, in response to an advert on TV or a real-life event. If you are mindful of the need to teach your tween about money, you will find plenty of opportunities to naturally talk about it.

Pocket money is an important way for tweens to learn about money experientially, as is giving them the opportunity to earn their own money. We’ll look at these ideas a little more later on in this chapter. For now, here’s a list of financial topics that I would aim for your tween to understand as they approach their teen years:

• The difference between a credit and a debit card.
• The difference between a credit balance and debt

• The difference between a prearranged and unauthorised overdraft.
• How interest rates work (for purchases and earning interest on savings).
• How to look at how much credit really costs (including payday loans and personal loans).
• The difference between renting a home and buying one (including how mortgages work).
• How to compare the cost of different items and services.
• How discount codes and coupons work and where to find them.
• How to run a monthly budget.
• How to plan savings (especially for an item or activity).
• How taxes work.
• Household bills and a rough idea of their cost.
• How investments work.
• Why gambling is so risky and why they are unlikely to win (including fruit machines, scratch cards and the like).
• How salaries work – how often they are paid and what the average salary is for a full-time worker in the country you live in.
• How sales work in stores and why they often aren’t as good as they appear (for instance, how the price of an item might be temporarily raised for a few weeks, so that it can then be cut dramatically for a sale, making the reduction appear more generous than it really is).
• How giving to charity and donations work.

So many adults today have a poor understanding of personal finance concepts, and I think this lack of knowledge – among other causes – plays a big part in the levels of personal debt and financial difficulties that many struggle with. We really must not leave our children’s financial instruction to their formal education because it is severely lacking in schools.

I passionately believe that all parents should teach their children to be financially literate and allow them to learn to earn, save, spend, donate and budget money in the safety of the family home from a young age. If we don’t, we are doing our children a huge injustice that may impact them negatively for many years to come.

If you have a tween, or soon-to-be tween, and you’d like to learn how to approach puberty, behaviour, education, relationships, screens, sleep, body-care, raising them to be an ally and more – then you may want to check out Between – *the* guide for parents of 8-13 year olds.

Available to order now in the: UK, Australia, USA/Canada and Elsewhere in the world