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The tooth fairy: wanted for crimes against financial education. Her typical MO — providing an anonymous pillow-based cash distribution system to your children. Her crime? Distorting what is likely to be their first cash “transaction” into a belief that money is generated by a magical source — with the added irony that it will go on to be spent on tooth-destroying sweeties.
Am I a heartless wretch for not believing in fairies? (There, I’ve just killed another one). But before you pronounce judgment, allow me to pitch my alternative belief system — the truth fairy — and why I think parents need to get real when talking to their children about money.
The start of the new school term marks a full year since personal finance education officially became part of the national curriculum in England. Children in secondary schools are now theoretically receiving instruction in the benefits of saving and budgeting, and the dangers of debt and disorganised finances.
I say “theoretically” as this essentially boils down to a few hours in maths and citizenship lessons, and does not apply to free schools or academies which can follow their own curriculum. There is also no exam to test this knowledge — they just have the real life “test” of managing student debt and the housing crisis lurking round the corner.
Furthermore, a “school report” carried out by Nationwide found that only a quarter of children said they had lessons about financial education during the past year. Worse, 39 per cent of teachers said they thought the move would not make any difference to the way children view money.
Nobody can dispute that teaching children how to manage their finances is a “good thing”, but some would argue this is the job of parents rather than teachers. But not all parents are good with money which is why we must beef up personal finance education in schools to ensure nobody falls through the cracks.
If you’re a parent reading the FT, there’s a good chance that you are pretty astute at running your household budget. So why should you upset your children by killing off Tinkerbell?
“My parents were from the generation that didn’t talk about money” was a common response I received from (older) FT colleagues when I asked what their parents had taught them about money.
The connection between work generating wages, and there only being a finite amount of cash to go round was made more powerfully in households where money was tighter, forcing parents to say “no, we can’t afford it”.
But too often, we shield our children from financial matters. Their first pocket money likely comes from the tooth fairy; we might tell them their Christmas presents come from Santa (OK, that’s another can of worms, but bear with me). The “in app” purchases many make on mobile devices follows this trend of fantasy money (a friend was horrified recently when his ten-year-old ran up a £5,000 credit card bill doing just that).
We hide bank statements and household bills in places they won’t see. We shoo them away if they try and look at the bill in a restaurant. We would rather explain the facts of life than tell them how much we earn.
Just as children progress through levels of maths at school, we should steer them through “real-life economics” at home. And not just by making them earn their pocket money (as I, and many of my FT colleagues had to) by doing household chores.
Some people — notably Columbia Threadneedle fund manager Toby Nangle — take this to extremes. He has blogged about creating a household bank, offering his children 10 per cent interest per week on their pocket money deposits (which are kept low, at 10p per year of age starting from age 5, so a five-year-old would get 50p a week). This is a fun way of teaching them the unparalleled joys of compound interest, but the “catch” is that any money that goes into the high interest account cannot be spent on sweet stuff.
“It can only be accessed to purchase assets approved by the fiscal authority (me),” he explains, adding that the “marshmallow test” of delayed gratification has been passed, as amounts of £5 or more are regularly saved over time.
The system might sound too complicated for some, but he argues “it facilitates good conversations about money”. The next step? Teaching them that compound interest can also work against them, in the case of a credit card or loan. And maybe helping them save for bigger items by offering to “match fund” their own efforts.
Whether it is taught in the classroom or at the kitchen table, getting children to ask questions about money — and to feel comfortable discussing money matters with you — is a crucial step as they become young adults.
I have always tried to expose my stepchildren to “real life maths” as much as possible. I’ve let them analyse restaurant bills (and challenged them to split it five ways, or add a 10 per cent tip in their heads). Out shopping, I’ve encouraged them to find a better value deal rather than buy the first thing they see.
And when I judged they were at an appropriate age, I showed them our entire household income and outgoings — salaries, mortgage, bills, savings, the lot. The shock value of a parent doing this should not be underestimated — they were fascinated. And when the eldest two went to university, we sat down and drew up a similar budget which I’m proud to report they have (so far) managed to stick to.
I can’t guarantee my system will prevent children from making financial mistakes in future — but the lessons of the “truth fairy” will leave them better equipped for their future than a lollipop and a pat on the head.