The importance of teaching children about money

The importance of teaching children about money is not something that’s taken as seriously as it should be, in my opinion.

Certainly not in the education system. As far as I can see, financial education for children and young adults is rarely covered within the education system at all. It wasn’t when I was young and it isn’t now.

Some might say that money’s not the most important thing in life and philosophically that may be true.

However, money’s up there with oxygen and water when it comes to sustaining human life. In the modern age, life revolves around money, whether we like it or not.

Money’s a measure of the value we add to the lives of others and it’s also the oil that lubricates human existence.

Without money, living would be virtually impossible for almost everyone today.

1. The point of teaching children:

The point of teaching children is to prepare them for adult life, surely?

Our aim should be to equip them with everything they need to know, so they can function effectively as adults once they leave the education system.

Now reading, writing and arithmetic are all essential subjects, of course, because you can’t get too far in the world of work without these basic skills. And it’s through work that we really add value and maximise our income.

Nevertheless, where I believe the education system generally fails children and young people is the omission of the teaching of essential life skills, like earning an income and managing money. Important subjects like money and personal finance are never covered at all, certainly not in any significant way.

2. Money and personal finance:

To me, it’s surprising that we don’t teach our children about money or personal finance in their formative years.

Surely whilst at school, children should learn about:-

- - - - The way money is earned;
      - The way to manage money;
      - How to budget, so they can pay their bills; and
      - How to spend their money wisely.

Children should also learn about how they should prioritize expenditure to avoid getting themselves into a financial mess, in my opinion.

3. The pros and cons of debt:

Personally, I think that children and young adults should learn about the pros and cons of debt.

They should learn about the difference between secured and unsecured debt, given the impact these factors will have on the interest rates that will be applied to such debt.

Young people should learn about the power of compound interest too. Not so much as a mathematical exercise but in terms of how it can quickly turn a relatively small debt into a very large debt if we’re not careful.

And they should also learn to appreciate that credit cards are not just a convenient means for cashless payment.

Used thoughtlessly, credit cards can result in personal wealth destruction and excessive levels of expensive debt.

Children and young people should know that credit cards are a form of unsecured debt, which means they come with very high rates of interest, which accelerate a personal debt mountain rapidly, if not paid off immediately once the bill arrives at the month-end.

4. Interest rates matter:

Everyone should know that interest rates really do matter. They’re very significant and shouldn’t be treated lightly.

Children and young adults should learn that they should never go into debt for the purchase of discretionary items. It’s always better that they save up for that discretionary purchase before they buy, of course.

5. The nature of work:

Every young person should learn about how work is just doing stuff for other people in exchange for money and that the more value they can add through their skills and know-how, the more they’ll earn throughout their life. So skills matter too.

Everyone should be taught about the economics of supply and demand and their impact on pricing.

Kids should understand the difference between trading their time with one employer for a wage and the opportunity to serve multiple customers through their own business and their own creativity.

If they have the ability to create products which solve problems for customers, then they have the potential to make a lot of money.

Essentially kids should learn to appreciate the difference between employment and self-employment.

6. The road to financial freedom:

Young people should learn about wealth, pensions and how to achieve financial freedom through putting money aside on a regular basis and investing it wisely.

They should be positively encouraged to work towards achieving financial freedom.

Once they’re financially free they can focus on doing things they enjoy doing rather than things they have to do, because they’ve no other choice.

If nothing else, this makes the goal of achieving financial freedom a worthy aim, in my opinion.

7. The impact 0f inflation, taxation and government borrowing:

Kids should learn about the impact that inflation will have on the value of their money and how this can affect their savings, particularly in old age. They should also be taught about risk and its relationship with reward.

They should learn about taxes and how the money they pay in taxes will be spent, and frequently squandered by the government.

Everyone should know that there’s no such thing as government money, only taxpayer’s money. Our money!

Children and young people should know that it’ll be their hard-earned money that’s being spent by the government.

They should also know that when governments borrow money this is simply a means for spending today and then passing the bill on to future generations. In other words, our children and grandchildren, and indeed their children, will pay the bill for today’s government borrowing. Potentially, future generations could be impoverished by excessive government borrowing today.

Government borrowing is not a free lunch. Someone eventually must bear the interest payments in future years, as well as the repayment of the original capital sum that was borrowed. And don’t forget, governments are borrowing money continually.

8. Holding government to account:

Children should be taught to question how their money is being spent by the government and how to register their disapproval if they’re not happy with what’s being done with that money, in their name.

9. Money matters:

Sadly most people have little real understanding of money, which means that they’re easily conned by sharp business practices, particularly in Financial Services, and by politicians driven only by their own self-interest.

Perhaps that’s why schools are not encouraged to teach personal finance as a subject.

Parents should demand that their children are taught about money, in my opinion.

If the education system fails children by not teaching them important life skills then, as parents, we must shoulder at least some of the blame, surely?

And as always, we’ll get what we tolerate.

For me, teaching children and young people about money is an issue for the education system, as much as it is for parents themselves.

Money really does matter and, in my opinion, we fail children and young people if we don’t provide them with the know-how and skills to make the most of it throughout their lives.

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