Age Appropriate Financial Education for Children
08 Oct 2020
When it comes to teaching children about money, what to teach and when will depend on the child’s age and their level of maturity. While children learn at different speeds, the guidance below will give you an insight into some of the concepts which might be applicable at the different stages of childhood.
Many of the items included below can be discussed in an age appropriate manner with different age groups. Where possible, it’s important to include real life examples to bring the concepts to life and to help the children to understand what you are discussing.
Pre or Early Schoolers (4- 6 year olds)
At this stage, children may be able to count (sometimes with the help of their fingers). Playing shop is often a fun activity and they’ll likely watch you closely when you’re in the local newsagents or supermarket.
Children might also take more of an interest in a parent’s job and also the role different people (the lollipop person, the bus driver, the doctor) play in the local community. They might want to find out how they can get (earn) some money so that they can buy things for themselves.
Here are some activities to help develop their money skills.
Concept of Money
Develop the concept of money. Outline that some things are free (going for a walk, playing with a friend) but we need to pay for other things (petrol for our car, buying milk in the local shop). Help them to identify notes and coins and their value. Play games where they can use real coins to pay for items.
Talk in general terms about how your household earns money. Explain what Mum or Dad might do in work and why they need to work. If one parent is at home, explain the importance of the work carried out at home and the contribution it makes to the household.
Examples from your Community
Talk to your little one about the work done by others in your community, particularly people the child might see on a regular basis. Some of this work might be paid. For others, it might be people volunteering their own time to help out. Explain the benefits of helping others and that we don’t always need to be paid for something to enjoy it or be rewarded for it.
Pocket money is a great way to get a child used to handling their own money and helping them to start to make some financial decisions. It’s best to give pocket money in small denominations (usually coins) and encourage the child to spend some, to save some, and to put some aside (however small) to give to a good cause or charity. A very rough rule of thumb on the amount to give is €1 per year of age.
Encourage your child to think about how he or she could earn extra money. This might be a top up on pocket money for doing extra chores or they might help out their granny or granddad to earn some reward.
Wants vs Needs
Talk to the child about things they may want (sweets, new toys) and things they need (new shoes, a school uniform etc). Highlight the difference between these things – some items are nice to have, but other things are more important and necessary.
Bring the child to the local credit union to open a savings account. You can find out more about credit union savings accounts for children here.
7 – 11 Year Olds
As your child matures, they will now be able to process more detailed information in relation to money and finance. Here are some activities that might help your child to develop their financial awareness.
Encourage Decision Making
Your child is now old enough to help out with small financial decisions. Encourage them to have an input on SOME purchases at the supermarket or when doing your shopping online. Ask the child to work out which items are wants and which items are needs from your shopping list.
You might want to assign the child a budget for a particular item and get them to determine which to buy. It might be easiest to pick a category which has mostly healthy choices (for example fruit). Bite your tongue if you don’t fully agree with the choices. If the product ends up going to waste, or you run out as the child bought a small number of expensive items, use it as a teaching lesson (resist the temptation to use the words “I told you so”).
Explain how you have also had to learn how to spend your money and not to buy ‘stuff’ that isn’t needed or will go to waste.
Encourage your child to look at the ‘two for one’ or discount deals and help them to work out if they are a good bargain. Ask the child to consider why the manufacturer or the supermarket are discounting the products in this way. Is it to just to make the item cheaper to buy or is the shop trying to encourage you to buy one particular item?
Share your Stories
Share stories about how you saved for something. It might be how you saved up to buy a car, or how you had to save for a long number of years to buy a house. Include details of any challenges which you may have encountered along the way. The more unique the story is, the more memorable it will be for the child.
How are things paid for?
At this stage, you might wish to talk about how the services within your community are paid for. The child may understand that the Government make the decisions but where does the money come from for our schools and hospitals? Providing some general information on the various forms of tax which you pay is a good way to explain this.
If you are buying an item in a shop, help the child to work out how much VAT is included in the price of the item. Explain how people have to pay tax on money which they earn and how this is used to pay for things like building schools, roads or to pay doctors and nurses.
Embed regular savings
Bring your child with you when you visit the credit union or bank. Talk in general terms about your transaction. Discuss why you are keeping your money in the credit union or bank rather than at home. Talk about the possibility of earning interest or dividends on your savings.
Encourage the child to save to their own account. Focus on the regularity of saving rather than the amount saved.
Compound Interest - Money can Grow
Explain compound interest and how money can grow. You might have heard of the teaser which asks if you’d prefer a million euro or one cent a day, doubled for 30 days. It turns out that by day 30, your one cent has magically grown to more than €5 million euro.
12- 14 Year Olds
As your child moves on to second level education and assumes more independence, it’s important that you ensure that they have the financial maturity to match.
Mobile Phone – Acceptable Usage
At this age, they are likely to have their own mobile phone. As well as the social implications that this brings (in contacting friends and family members), it also opens up the potential for contact with the wider world.
It’s important that your child understands the rules you have set and what is and is not acceptable. You should agree when and for how long they have access to the phone, the rules around who he/she may contact, and how much phone credit they can get. It is likely that you will, via parental controls or otherwise, have restricted which websites and content may be accessed.
Explain the Rationale
Rather than just setting hard rules around phone usage, it’s important to discuss the reasons with the child. The more they understand the rationale for the rules, they more likely they are to respect them.
As well as talking about the dangers of the inappropriate use of social media, you may also wish to look at the dangers of sharing personal information. Share news stories with the child of someone who had their identity used online or perhaps examples of financial fraud. Ask the child to think of the methods that could be used to entice people to share sensitive financial details online.
Top up Savings
With interest rates at historically low levels and most savings account giving a negligible return, it is hard to embed the concept of savings earning interest (or dividends in a credit union context). Consider ‘matching’ their savings with a contribution of your own: You every €/£20,
could you top in up by, say, €/£2. This will help the child to work out the trade-off between spending the money now or saving up to have more money to spend in the future.
To reinforce the savings habit, go to the credit union or bank with your child to lodge savings into his/ her ow account. You might want to discuss his/her balance. Perhaps how this has grown over time and the sacrifices he/she made to achieve this. Perhaps you might want to look to the future and help the child to map out a savings goal.
It's OK to Spend
If you are providing pocket money, some children may default to saving it all. It’s no harm to encourage the child to spend some (but perhaps not all) of their pocket money. In later life, they will face plenty of financial choices. Helping the child to work out the best option between the choices available (how much to spend, what to spend it on, how much to save etc.) will be more beneficial than simply saving all of the money. In practice, most parents may agree that children do not need any encouragement to spend!
Encourage the child to look to the wider community to identify individuals or groups who might be in a less fortunate position, financial or otherwise, than your own. You might want to explore the work of a particular charity and how the donations it receives helps it to support people who are in need.
You might also encourage the child to look to the community for examples of people who have started their own business. Ask the child to think about the qualities that might make a person good at running their own business.
Money and Happiness
Explore with the child their perceptions about money brining happiness. Use an example of someone they admire who has run into money difficulties. Ask if they think that having lots of money will make you happy.
Explore the importance of how you use the money that you have. Talk to the child about the happiness which comes from helping others, either financially or otherwise.
15- 18 Year Olds
At this life stage, the young person, while still depending on their parents for the majority of their income, will have a high degree of financial independence. They will have a good deal of control over what they spend their money on and they will be much less likely to check with the parent before making a purchase. They will also be looking to their future and may start to think about the financial implications of going to college or choosing a particular career.
There are a number of important financial milestones to be considered at this life stage.
As the begin their first job (perhaps weekend work or a summer job), they are likely to receive their first pay check. With this new ‘wealth’, a new range of financial choices open up to them.
If you have previously engaged with the child in relation to money matters, it’s likely that some of this groundwork will take effect.
There may be a temptation for the teenager to ‘splurge’ with their first paycheck. This, in itself, does not represent an issue. Moreso, encouraging the teenager to pay themselves first, by saving a certain portion of their income, will help to embed a savings culture.
Gross vs Net – The Bottom Line
While they may have some awareness about tax before now, getting their first pay check brings this into sharp focus. Sit down with them to look at the various deductions (PAYE, PRSI etc.) and how they are calculated. It can often come at a significant surprise when the penny drops on the difference between gross pay and net pay!
Future Careers – Think Beyond Money
As the child matures, they start looking to the future and their choice of careers. It’s important to help them think about their desired future career in terms of suitability for them, rather than just on the salary that they might earn. While the trappings of being a Premier League football player might seem attractive, it’s important to balance this with the realism of the tiny proportion of people who rise to such levels.
Equally, a social media ‘influencer’ might seem like a lucrative profession, but it may be worthwhile for them to consider their perceptions of this career versus the likely reality.
Third Level – The Financial Reality
Whatever their future goals, it’s likely that third level education or an internship will be part of their path. It is important that they are aware of the associated costs. While the family may or may not qualify for a grant, it’s likely that much of the financial support for this part of their life will come from parents or guardians.
Sacrifices may need to be made to make ends meet at what can be a financially stressful period. It’s important that the student understands this and perhaps expectations are set around their role in helping to contribute (e.g. via a summer job). The goal here is not to put pressure or stress on the young person. Moreso, it’s to ensure they know that the family may have to make adjustments or sacrifices to help fund third level education.
Peer Pressure – How to Cope
While peer pressure can be a factor for children at all stages, it becomes more prevalent in teenage years. Some of the young person’s friends might have the latest branded items or may in a position to afford to splash out on nights out or trips away. Young people may also be influenced by lifestyles which they see on TV or social media.
It can be particularly difficult to deal with a situation where the young person might be looking to buy something to keep up with their peers. However, help them to take a rational look at the item in question and question its true value. Perhaps compare the cost of the item to something of similar cost (a new phone might cost the same as 15 trips to the cinema) in order to put some perspective on it.
If it is an item which they really want, perhaps you can help them to outline a savings plan (via their pocket money or part time work) in order to enable to buy the item for themselves.
Independence – The Open Road
As teenagers get older, they seek their own independence. For many, getting a driving licence in the first instance and ultimately their own car might be a short-term goal. This is particularly the case where the teenager lives in any area with limited public transport options.
As well as the costs of buying a car, the associated insurance and maintenance costs are very significant. If getting their own car is on a teenager’s short-term horizon, saving and managing a budget becomes even more important.
Helping the teenager to work out the costs of both buying and running a car will help to bring a dose of reality to the situation. While a savings plan will help to work out the initial cost to buy the car, it’s important that the ongoing petrol/ diesel / electricity, insurance and maintenance costs are considered. As a guide, the AA estimate that it costs more than €10,000 each year to run a family car. While the idea of owning their own car might seem great, the financial reality might be something completely different.
As the young person approaches adulthood, it’s important to understand the various sources and forms of credit. While a personal loan or mortgage might be straight forward to understand, the use of credit cards and high interest forms of debt represent very significant issues across Ireland.
The latest research by the Irish League of Credit Unions highlights that the majority of credit card users don’t know what interest rate they pay. While the young person might not be getting a credit card any time soon, it’s important that they have an awareness of how they work and the pitfalls of not paying off debt.
As well as the very high levels of credit card debt, as a country, we also have significant issues with the use of moneylenders. Again, explaining what a moneylender is and how people can run into financial difficulty by borrowing money at very high rates will be a very important life lesson.
Financial Education in school
At this age, many young people will receive some elements of financial education in second level schools. While financial education does not exist at second level as a standalone subject, many of the concepts are included within Home Economics, Business Studies, Maths etc.
In Northern Ireland, financial capability generally falling within the Maths curriculum, with some elements covered across a range of other subjects.
In order to assist schools to deliver financial education, credit unions have developed a resource called ‘Clued-in’. The resource, aimed at second level students, explains personal finance in a concise, easy to follow, engaging format. It has been designed for delivery by teachers in a classroom setting, helps students to explore their relationship with money, the good and bad, and to look at ways that they can make smarter, more informed decisions. More information on the resource is available at www.cluedin.ie
Long Term Results
While there can be a tendency in Irish households to consider money a taboo subject, having open, honest and age appropriate conversations about money and finance with children is an important part of their development. These are ‘sticky’ skills. When learned at a young age, they tend to follow us through later life when these decisions take on even greater importance.
If you've got Money on your Mind and you need some guidance or further information, check out our Money on your Mind series. You'll find insights, tips and suggestion to help you to feel more knowledgeable about and in control of your financial situation.
The content within this series is aimed to provide general guidance and information only. It does not represent financial advice.