Previous research has shown that adult financial capability is linked to what is seen, learned and experienced in childhood. The importance of financial education and that it needs to begin early in life has now found widespread acceptance. This increases the chances of people managing money well and making good financial decisions later in life. Nine-in-ten children and young people (90%) said they would go to their parents if they wanted advice about money. However, only 60% of parents claimed to feel confident when discussing money with their children. There is a clear need to understand how parents can help their children, and the suitability of the strategies that they employ in these discussions.
This 2019 report from the Money and Pensions Service (MaPS) outlines the way parents are approaching financial education and the different strategies they are using with their children. Researchers visited 25 households, spending about four to five hours with each family. They talked to the parents and the children, both together and separately.
Over 40 parents and 55 children were spoken to as part of the research. They were mostly from the MaPS ‘struggling’ and ‘squeezed’ segments of the population. The families were recruited from across the UK, with ten in England, and five each in Scotland, Northern Ireland and Wales, and had children aged from 3-17 years old. Household incomes ranged from £17,500 to above £50,000, and included nine families classed as over-indebted. The parents had a mixture of employment backgrounds.
Parents thought about teaching their children about money in terms of four main areas:
Earning: Parents wanted their children to know that money had to be earned and wasn’t limitless. Pocket money was generally given to children when they started wanting to buy their own things, with young children having predominantly cash, and older children often receiving digital payments.
Spending: Parents tried to demonstrate how to make money go further by showing children how to save money on household items (e.g. second-hand white goods) and encouraging their children to then buy used goods too (such as sports equipment). They also wanted their children to track spending and to budget, learning to provide for essentials before other items.
Saving: Parents taught their children that saving little and often can add up to a lot, with children encouraged to put this into practice. Parents also felt it was important for children to have their own savings account, though the majority of parents were managing these accounts on behalf of their children.
Borrowing: Teaching about borrowing was generally less common, though parents who had had bad experiences were teaching their children to avoid borrowing.
The main overall teaching methods were:
- Involving children in household and everyday financial decisions;
- Giving children responsibility over their money;
- Role modelling (such as openly demonstrating good financial habits).
Challenges and opportunities arising from this report included:
- Many parents expressed uncertainty about when to start talking about money with their children. The report suggests ensuring practical information and confidence building materials are readily available could help to overcome these barriers.
- Parents’ actions and attitudes didn’t always reflect what they were trying to teach their children about money. Supporting parents to develop and use a range of teaching methods, including direct messaging, role-modelling and giving children experience, could help parents overcome this.
- Parents found it difficult to ensure consistency with other family members in teaching children about money.
- Parents were highly motivated to teach their children about money. However, it often fell down their list of teaching priorities.
- The report found that while parents are supporting financial ‘ability’ and ‘connection’, there are often challenges around teaching ‘mindset’. Given that mindset is recognised as a strong driver of capability, parents would benefit from support that explains the association between teaching their children about money and the positive long-term life outcomes this can lead to for their children.
- Tools and guidance on how to actively link positive financial behaviour to other skills that they want their children to learn, such as delayed gratification, self-confidence and commitment, could help embed components of financial capability among other life skills they already prioritise teaching.
Points to consider:
Methodological strengths and limitations:
- This qualitative report is based on a small number of interviews and observations and therefore cannot be seen as representative of the UK population without reference to further research.
- This report is relevant to all researchers with an interest in the links between financial capability in children and the related outcomes as they transition into adulthood.
- This research can be treated as a good indicator of the links between the financial capability in childhood and adulthood, though more robust evidence is needed to further support the findings in this report.