“The things we see and learn about money in childhood and adolescence can have long-lasting consequences. Money habits that can last for life begin to form between the ages of 3 and 7, and are shaped by our experiences in school, at home, and in communities.”
— Money Advice Service
So, we can learn about money from a very young age. By the time we get to our teens, we should know enough to sensibly save for the future, but how many of us can safely say that was true in our case?
The problem is that learning about money isn’t a level playing field. According to the Financial Capability Strategy for the UK (FinCap), only four in ten children learn about money at school. This happens because school timetables are too busy and teachers don’t always have the necessary knowledge and skills. So who to blame?
The Young Persons’ Money Index shows us that nearly three-quarters of young people in the UK get their money knowledge from parents and other family members rather than at school. This could be good news for some teenagers; not so good for others. The reality is that some parents don’t have the knowledge, experience or simply don’t have the time necessary to give their kids a good grounding in financial literacy.
So when it comes to the question, How much should a teenager save? The answer isn’t black and white. Perhaps the focus should be less on what a teenager should save and more on what they will save given the right environment and preparatory education early on.
Well-meaning parents often try to shield their children from money worries.
You may feel like you are harming their innocence by making them aware of what many adults associate with stress or struggle. You may be asking yourself: is financial literacy important for kids? Does it really matter if children and teenagers are good with money?
The answer to this question is ‘Yes’. Why? Because the sense of money children get while they’re young provides a strong foundation for a lifetime of proficient money management. In fact, the younger generation faces more financial risks and more complicated financial products than their parents ever did, so financial literacy is more important than ever.
Given the money pressures of today, any young person needs to:
The limited financial education children get in schools is far from adequate. Hence, parents have an essential role to play in helping their children to develop a good understanding of the value of money and how to budget and save.
“School staff have a vital role to play in ensuring that children and young people develop the skills they need to be financially capable and thrive as they gain their independence. When children and young people do receive financial education, we know it makes a difference.”
Whether it’s coming from the school or a parent, for this type of teaching, it helps to start early. Resources like YourCash show us that children can start learning about money when they’re two-years-old. Here’s a summary of what they suggest:
2-6 years – learning using interactive money-based games is useful.
7-11 years – children can understand the value of money by this point. They can understand that they can’t get back what they spent. They can also start completing tasks to earn pocket money.
12-18 years – young people should be able to manage their own money. They should also know that it doesn’t grow on trees. At this point in life, young people can get temporary, part-time, or full-time work and earn their own money.
Later on, we will explore the research that demonstrates just how important it is to instil financial principles into children before the age of 12.
The Financial Capability Strategy for the UK defines ‘financial capability’ as:
“encompassing the financial skills, knowledge, motivation and attitudes required to make good financial decisions and to achieve good financial wellbeing”
— Money and Pensions Service
The foundations for these are developed and can be observed in childhood and adolescence by the following criteria:
Active saving – the propensity a child has to consider saving money rather than spending it
Good day-to-day money management – the tendency a child shows for looking after their money, planning, spending and keeping track.
According to the CYP Financial Capability Steering Group, financially vulnerable individuals are those who are at increased risk of poor financial capability, and/or at risk of disproportionately negative impacts of poor money decisions. Around 50% of the UK is considered to be financially vulnerable.
As part of the Financial Capability Strategy for the UK, the Money Advice Service conducted a major survey in 2016 (updated in 2018), interviewing a total of 4,414 children aged 7 to 17 and their parents.
They found that when asked to imagine having £5 to spend on a school trip and whether they would plan how to spend the money and stick to that plan, 42% – less than half – said yes. Most essentially though, is that this average percentage dropped significantly when isolating key vulnerability factors – highlighting significant disparities between vulnerable groups and British youth as a whole.
So what are the vulnerability factors? Four key themes were identified in the 2018 Vulnerable Children and Young People and Financial Capability Literature Review as being linked to poorer financial capability:
Individual characteristics — things about a child which are very unlikely to change such as disability or ethnicity
Individual skills and behaviour — things about a child which may change, such as cognitive skills or behaviour
Environmental factors — such as economic circumstances including household finances and indebtedness
Education — learning or recall ability, financial education in or outside of school
Those children with a long-standing social, emotional and mental health (SEMH) condition or a learning difficulty often have lower levels of financial capability. In general, these links seem to continue as children become
These children tend to have less responsibility for their day-to-day money management but do demonstrate good active saving behaviour. For example, saving at least monthly, and choosing to save some money when they are given it (50%, higher than the UK average, said they would plan how to spend £5 on a trip and stick to it). They are also more likely to accept that they may not get things they want, or that they may have less than friends.
What’s important to note is that the strongest links between individual characteristics and financial capability are found for children older than 12 – meaning preemptive interventions and education before that could massively help their odds in later life.
Children with poor behavioural or social-emotional characteristics such as ’not generally being willing to do what is asked of them by parents or teachers’ or with poor perseverance such as not being able to ‘finish a task they have been asked or decided to do’ also show lower levels of financial capability.
Poor perseverance, self-efficacy and low self-esteem also showed some links to negative financial capability. Again, these all strengthen with age, so early intervention is key.
Especially for younger children, performing below expectations in maths or numeracy seems to be associated with poor financial capability, particularly in terms of active saving and planning how they are going to spend or save their money. These children are also less likely to recall learning about managing money in school, with students scoring below grade C in GCSE maths or English having poor financial knowledge, mindset and behaviour.
Only 25% of them, if given £5 for a trip, would plan how to spend it and then stick to that plan (compared to 42% national average).
Our analysis shows that a number of environmental factors continue to be associated with lower levels of financial capability. The strongest negative factors are living in social housing or living in an income deprived area.
Specifically, children who live:
In comparison, those children who have a regular, ongoing role looking after or caring for their parents, or any relatives who are ill, disabled or elderly tend to show higher levels of financial capability compared to children in the UK as a whole. They are much more likely to be active savers (58% vs 47% UK) and those aged 14 to 17 are more likely to keep track of their money with a tool and to know how much money they have.
Furthermore, children with a caring responsibility and those living in households where the family has fallen behind on or missed payments in the last 6 months have higher recall rates in finance lessons than the UK average.
For many people, finances are an unsolvable Rubik’s cube filled with anxiety. They have a hard time formatting and sticking to a budget.
This is because we don’t teach children the value of a good credit score. But don’t fret, you can easily solve the finance puzzle with a little hard work, self-control, and the right tools.
The two most important things for children and young people to learn about money are:
According to FinCap, around 39% of 16-17-year-olds in the UK don’t have a current account, 18% don’t have a bank account at all and out of them, 40% have never even set foot in a bank.
So if you want your child to develop good spending habits, start by opening them a bank account. After that (and after you’ve shown them how to track their purchases with online banking and budgeting apps), there are several aspects of financial education children find useful.
Being well off is one thing but it means little to your children if you don’t talk about it. The economy can be a daunting concept, with many facets that even some adults can’t get their head around. Get your children and teenagers involved in financial discussions and create a healthy, open environment where they feel comfortable expressing their worries or areas of confusion.
Giving young people financial responsibilities is one of the first things that the Money Advice Service advises parents to do when they’re teaching children about money. Children don’t instinctively know how to manage and save money. Adults have a responsibility to explain to them that money doesn’t grow on trees – they can’t have everything they want without working for it. This includes things like:
We know children learn by example from their parents. A parent with good personal finance and budgeting tactics will breed the same skills. Of course, the opposite is true too. A parent who pays their bills late doesn’t prepare for the future and overspends on things like takeaways, gourmet coffees, and other luxuries lead to children mimicking this behaviour.
Being good with money is easier said than done and learning about finance can be a bit dry.
The good news is that there are many virtual games available on mobile devices, some aimed at pre-teens to help them get to grips with money matters. Even some video games involve resource management. A character can only upgrade their things when they’ve worked for it. So, children are always learning, even if not consciously.
The most important thing is that learning can’t be boring if it’s going to stick. A survey published by the Bank of England found that the top three things that children believe would make learning about money more fun are jokes and funny stuff, games, and using “real” money in “real” situations.
Looking at this report by Newsround, in which 2,000 13-19-year-olds were surveyed, we can see that many teenagers do already save. They said that they spent 60% of weekly pocket money and saved 40%. This is a good ratio considering that the general rule of thumb for savings overall is to save 10% of earnings.
Saving is always a balancing act between having money for the future and using income now. One thing is definite; seeing savings as an untouchable expense can help create good habits. Rainy day money, whether it’s for a deposit on a house, savings to go to university or those unavoidable emergencies is always necessary.
How much, of course, depends on obvious factors such as income and expenses. Typical expenses for young people include a mobile phone, travel to and from college, school or work, clothing and socialising. These costs are all fine but they need to be limited to what’s affordable while allowing for saving.
So, it makes sense for young people to set aside at least 10% of their income each month as savings. This helps savings to build and if there is any more that can be added at any point, that’s an added bonus.
Saving for the future isn’t easy, especially when you’re young. You don’t want them (or yourself) to look back on their lives and think in retrospect, “I should have, I could have and I would have saved enough money – if I only knew better”.
Financial planning for young adults is important but, if you instil the right principles in them early on, they should be able to do most of this themselves. With help from both parents and teachers, children will have a sound understanding of how much a teenager should save before they reach that age.
Money and Me – a free, 12-lesson teaching resource developed by Bank of England, Beano and Tes that introduces young people to how money and the economy works.
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