Money bank
What can you tell us about your new scheme to address finance with children?
The idea is to run a pilot scheme for half a term with a class of children, for one hour once a week. I want to work with the PTA first, to establish what “success” would look like. So if parents and teachers would like to see children giving more thought to spending, we’d need to know what we’d see them do differently if they were thinking more, so we’ve got something to measure. If parents think asking less about “can I buy” and more about, “what’s the best place to save my money” would be success, we’d need to devise some way to measure how much they ask each question. When we know what we’re looking for, we can set up ways to establish how well it works. Then I can run the programme and we can see – “does this actually make a measurable difference to children’s behaviour with money”? That’s what I want to accomplish, getting a system that can ultimately be rolled out to all schools at all ages from 10-18 that will help children to learn to think and act sensibly with money.
It’s easy to set up lessons to teach children, for example, what an APR is and how to get a credit card. And you can give them tests to find out if they’ve learned. But that doesn’t tell you if they are going to behave sensibly, whether they are going to take any notice of the APR when taking out a loan, or whether they are going to consider saving up so that they don’t need to take out a loan at all. Most adults have credit cards, they know that a 23% APR is high, but it doesn’t stop them paying it month after month. And the fact that Wonga and payday loan companies have APRs in the thousands of percent doesn’t stop lots of people taking those loans. That isn’t sensible, and I don’t think it is how we ought to teach children to behave.
What inspired you to go into schools and help children with their money?
When Taming the Pound was published, the majority of feedback I got was about the chapter on children. Everybody had or knew a child who was a budding Alan Sugar, or more commonly, spent money like Paris Hilton. I’d worked with some parents about ways to help their children develop good sense with money, hence the book chapter. But I hadn’t realised how much concern there was that children were growing up with no real concept of how money worked, what debt was, where money came from or how to use it wisely.
Why is it important for children to know how to manage their money even if it is on a much lesser scale than adults?
According to a Co-op bank survey, about 70% of the population of the UK are in debt. There is concern over exams getting easier, children not being good at maths, not learning the skills in school to be employable, not being able to cope with the adult world. Parents are naturally concerned. But if the children don’t even know as much as their parents, 70% of whom are in debt and whose actions with money caused the “double dip” recession, what hope is there for the future? Handling money is a vital life-skill, we really need them to be better with money than their parents, not struggling to be as good and certainly not worse.
What response have you had to your talks from parents and their children?
Most parents are keen. Some are concerned that teaching children will make the adults look bad, but I remind them that personal finance hasn’t been taught in schools before. If you wanted to find out about credit and debt, you had to find out from the people selling them to you (like the banks). And you don’t end up with a quality car by getting all your knowledge about cars by buying from a second hand car salesman.
At first, most children just want to learn how to get lots of money, they’re not interested in why it’s often better to save up for something even if you could buy it now or why it’s important to know why you’re spending money on particular things. They just want to be able to spend money without thinking. That is a recipe for future disaster. When they actually start to think about why they want a new PS4 or whatever, learn to set goals, save, solve financial problems, they find it interesting and, being young and mentally flexible, they learn really fast.
What impact can parents have on their children with regards to money?
Huge. Parents are first role model children have. What you want is to set an example of being sensible, honest and open, having discussions like adults and not screaming matches or nasty silences etc. If they’ve got a good model of sensible behaviour with money they’re more likely to do the same themselves, they see that it works. And if you can’t set that example yourselves, try to expose them to good habits, at school and with people who you know who are sensible with their money. That way, the behaviour they see, and that they may copy, is going to help them. If what they see is anxiety, anger, resentment, fear etc. then they may learn to associate those emotions with money, which isn’t a good start for them in learning how to react sensibly to having (or not having) money themselves.
Do you find that children often follow in their parents' footsteps in terms of their approach to money?
It varies. Anybody with more than one child knows that you can treat two or three children in pretty much the same way and because they are all individuals, they all react differently. Some children may follow their parents’ example, some (in the same family) may do the opposite. So you can have really miserly parents with one child who is like them and one who spends like a sailor on shore leave, or they might have children who somewhere in between. But children do learn behaviours from observation, so if what the parents do is waste money (whether they’ve got plenty or not), spend lots of time arguing about money, are constantly worrying and anxious etc., the children are likely to pick up the vibes. If what they see is a sensible, adult attitude, an attitude that money is important, but it’s only a means to an end, not of any value in itself, then they are likely to pick up that vibe too.
What have you learned from this experience?
That people are scared of not knowing things that are actually quite simple. People have the idea that money is really complicated. As a psychologist who works a lot in the finance area, I know that the complicated part is the person. Even for somebody with complicated tax affairs, pensions, expatriate earnings and so on, the really complicated part is working out what they want their money to do for them, establishing what the person really values, what their goals are. Once we know that, the technical side of investing, tax etc. is pretty simple – the very highest level financial qualifications for advisors are only about masters level and most people wouldn’t even need a GCSE to be able to handle their finances well. On the other hand, the human brain is the most complicated thing in the known universe, no professor or scientist knows even ten percent of what there is to know about the way people think. But still people are terrified of the money, they pay thousands for financial advice that is relatively simple, and never try to work out the complicated bit, what they really want their money to do for them. They become the slaves of their money, instead of having the money serve them.
What do children mostly spend their money on?
It varies a lot with age. The thing that tends to distinguish children from adults on spending is how long something remains current. Children (even up to late teens or even twenties) tend to want something now, but in two weeks they’ve forgotten about it. Adults want it now (whether it is a pair of shoes or a gadget), but they are sometimes better at resisting buying it now (as long as they don’t have a credit card on them), and are usually more consistent in wanting it a month later. So children may want the latest play-station, the racing bike, the particular clothing, the tattoo – but if they wait a month they aren’t so sure they want to spend the money on it, and if they wait six months they’ve often forgotten all about it. It’s a good way to find out how much they really want it and teach them control. If it is something they could buy by saving their pocket money for a couple of months, tell them you’ll contribute 25% if they save up 75% of their money. They get it a bit cheaper, but they have to learn to save – and they have time to decide that actually, spending £50 on that item isn’t worth it, because they’ve now seen something else they like better! They can end up with the savings habit and never wasting money, because anything they do buy, they really want and treasure for ages.
What is the best piece of advice you give out at your talks of children and their money?
Ask “why” questions, no “how” questions. For example, a child wants a particular toy. If the question is, “how can I get it”, the answer may be to complain and beg and whine until mum or dad gives in, sticks it on credit card, and leaves the family paying 23% APR for something that will be broken or forgotten in two weeks. If the question is, “why do you want it”, the answer may be “because all the other kids have it”. In which case, if you go to a different school and all the others have their own pony, will you want one of those? When you grow up and the bloke up the road has a Porsche, will you want one too even if you can’t drive? If the answer to, “why do you want it”, is “because I do”, what are they prepared to give up to get it? The Olympic athletes wanted gold – they had to give up hours of sleep, time with their friends, resting when they felt tired to push themselves harder and get fitter. What would happen if they said– “I want a medal, but I’m not prepared to work out what I have to give up to get one, and I’m not prepared to give up anything else to get one, I just want one”. Those athletes only won gold (or silver or bronze, or even qualify for the games) by knowing why they wanted it, how much they wanted it, what they would have to do to get it, and being prepared to do what it took to get it. If children learn to ask themselves “why”, they can get into the habit of working out how much they really want things, and develop the skills to work out what that costs, not just in money, but in time, effort, earnings etc. And being able to do that is a really important life skill that, sadly, most adults seem not to have.
Female First Lucy Walton