Teaching Children about Finances

As children head back to school, we are reminded of the importance of teaching children about finances and managing money from an early age. Research (by the UK Government MoneyHelper service) has shown that early experiences with money and how to manage it appropriately helps children in their later life to make more responsible financial decisions.

Why is it important for children to learn about money?

1.      Financial Responsibility - Understanding money from a young age helps children develop financial responsibility. They learn the value of money, how to budget, and the importance of saving and spending wisely.

2.      Decision-Making:  Learning about money helps children understand trade-offs. They learn that buying one thing might mean they can't afford something else, fostering better decision-making skills.

3.      Economic Concepts: By learning about money, children gain a basic understanding of economics, such as how markets work, the concept of supply and demand, and the role of money in society.

4.      Financial mistakes: By handling money early, children can make small, manageable mistakes, learning from them without significant consequences. These lessons can help to prevent more significant mistakes in adulthood.

5.      Savings Habits: Teaching children to save a portion of their money helps establish a habit of planning ahead for the future that can continue throughout their lives, promoting financial stability.
 

What practical steps can you take to teach children about money?

1.      Discuss the different uses of money – by discussing the difference between “necessary” and “luxury” expenditure, this helps children to understand the value of money and the need for prioritisation in spending on a limited budget. Try getting them to budget their pocket money between long-term savings, short-term savings and short-term spending.

2.      Use every day activities - When shopping, involve your child in making choices based on a budget. Explain why you choose certain items over others and how discounts or sales work. A big difference in spending over the past couple of decades has been the move from cash to card and then to contactless payments. If you pay with a contactless card, make sure they understand the amount being spent as it’s easy for them not to realise the difference between an inexpensive and an expensive purchase. If your child is given an allowance (even if very small), this helps them to learn to manage a fixed amount of money and make decisions on how to spend or save it. You can also encourage them to save for a goal, such as a toy or a game. This teaches them about delayed gratification and the rewards of saving.

3.      Use tools and resources – there are many books, apps and games designed to teach children about money. Online interactive quizzes or fun board games like Monopoly can introduce basic financial concepts and real world financial dilemmas into your child’s every day play.

Teaching children about money should be a continuous process that evolves as they grow to adapt to their more complex financial understanding and needs. The key is to make it practical, engaging, and relevant to their daily lives, helping them build a strong foundation for financial success.
 

Helping children to understand the benefits of saving and investing

Junior ISAs are a great way of teaching your child about the importance of saving for the future, whilst also helping them to accumulate a growing savings pot for the future. You can also introduce the concept of tax-saving on investments. The illustrative chart below shows if you contribute £50 per month into 2 different Junior ISAs – 1) a Cash Junior ISA returning a constant rate of 3% per year and, 2) a Stocks and Shares Junior ISA returning a constant rate of 8% per year. This illustrative example shows that a parent could generate over £23,000 by their child’s 18^th birthday if they invest £50 per month into a Stocks and Shares Junior ISA which returned a constant rate of 8% per year, contributing this from the day their child is born up until age 18. This £23,000 end savings figure compares to a contribution figure of £10,800 which manages to more than double over the 18 year period due to the returns generated by investing.

The Noise

• Keir Starmer made his first major speech in office this week, using it to warn that his government’s October budget statement will be “painful”. He asked the nation to accept “short-term pain for long-term good” as he laid the ground for likely tax rises. He explained that they have inherited public finances that are worse than they ever imagined, reiterating that they had little choice but to rebuild public finances. The prospect of fiscal prudence has given investors confidence to buy gilts in the aftermath of the election amid a rally in global bonds. The pound has also benefitted, currently near its strongest level versus the dollar in over two years.

• Core inflation in Japan’s capital accelerated for a fourth straight month in August, rising 2.4% from a year earlier. It’s tracking comfortably above the central bank’s 2% target and backs market expectations of more interest rate hikes ahead. The accelerated Tokyo inflation, considered a leading indicator of nationwide trends, largely reflected a phase-out of government subsidies on utility bills and rising rice prices due to intensifying shortage caused by extreme heat. Wage growth is also expected to drive private consumption and push inflation up further, though the central bank don’t see it pushing inflation away from its 2% target.

• The US state of Texas has repeatedly been in the news over the past three years for Senate Bill 13. The bill requires state entities such as state pension funds to divest from companies that “cut ties with” or “boycott” fossil fuel companies. Texas is the largest and most prominent Republican-led state to crack down on businesses whose ESG policies it dislikes. This has particularly impacted Wall Street investors that have been pulling financial support for the oil industry in an effort to curb emissions that contribute to climate change. “Oil and gas is the lifeblood of the Texas economy” said a state representative, with the state maintaining a divestment list of 16 financial companies and more than 350 investment funds whose ESG policies impermissibly target fossil fuel firms. Those in favour of ESG are now fighting back. The American Sustainable Business council are suing the state, as it believes the law violates free speech rights “by barring companies from competing for state investments whenever Texas believes those companies espouse a disfavoured viewpoint about fossil fuels”.

The Numbers

The Nuance

Having started August showing unexpected signs of weakness, a month of reflection and new data shows this was more of a blip than a sign of things to come. Since the weekly jobless claims at the start of August, the US economy has displayed resilience, with jobless claims stabilising and the economy growing faster than initially thought in the second quarter. Jerome Powell’s speech at the highly anticipated Jackson Hole Symposium also helped market sentiment. He made it clear that the time has come for policy to adjust and for rates to be cut at the next Federal Reserve meeting in September. Powell emphasised that though the direction of travel is clear, the timing and pace of rate cuts will depend on “incoming data, the evolving outlook, and the balance of risks”.

Touching on the labour market, it has been slowing in recent months in an orderly fashion that is keeping economic expansion on track. The key driver for this has been that re-employment opportunities for laid-off workers is becoming scarcer. With the downside risks to employment increasing, it’s coming more into focus for the Fed from a policy rate perspective. Though they will continue to monitor inflation closely, they are now sufficiently confident that inflation is on a sustainable path back to 2%.

The US economy grew at a slightly stronger pace in the second quarter of the year than initially reported, with GDP rising at a 3% annualised rate versus a previous estimate of 2.8%. This reflects an upward revision to the economy’s main growth engine, with consumer spending advancing 2.9% versus the prior estimate of 2.3%. It more than offset weaker activity in other categories, such as business investment and exports.