20th July 2011
According to new research from Capital One's ‘Credit Made Clearer' initiative, there is a worrying gap between people and the banks and financial providers that sell them products – as 43% of parents do not hold basic financial knowledge. The study revealed that many parents don't know what terms such as APR or PPI stand for. However, around 81% of parents believe that their children should learn about finance from them.
Brian Cole, managing director of Capital One, says: ‘It's encouraging to see that during difficult financial times, financial education is high on parents' agenda. However, it's clear that finance is a topic that some parents may need help on.'
The lack of financial education for children is an ongoing problem. In April 2010 financialeducationpetition.com, was launched, with a petition to bring financial education to the school curriculum.
It closed in May with 30,872 signatures and was sent to Michael Gove, the Education Secretary, and both Prime Minister David Cameron and Deputy Prime Minister Nick Clegg.
The All Party Parliamentary Group on Financial Education for Young People, which consists of around 120 MPs, strongly supported the petition, especially as teenagers and young adults are increasingly targeted with financial products as soon as they can take them out.
Justin Tomlinson, chairman of the group, said: 'Young people are entering an increasingly complex financial world of store cards, mobile phone tariffs, credit agreements and financial marketing.'
So where can people go to educate themselves on the topic of personal finance?
Which? credit expert Martyn Saville commented: 'It's great that so many parents realise the importance of financial education. The best solution is for children to receive education both at home and at school.
'There are also other excellent services such as MyBnk, a social enterprise working to build young people's knowledge, skills and confidence in managing their money. Parents can also make use of the excellent resources produced by the Personal Finance Education Group (PFEG), the government-funded Money Advice Service website and, of course, the extensive financial guides on the Which? website itself.
How do financial advisers impart basic money sense to their kids?
Jason Witcombe, from independent financial adviser (IFA) Evolve Financial Planning, says:
"Whether they are 5 years old or 15 years old, the key is to teach them the value of money in terms that they will understand. With a younger child it may be something simple like giving them pocket money and helping them understand the cost of different items, not just things they want to buy, but areas where you feel they are wasting money. So, if they are leaving the tap on, or wasting their dinner, explain that what they have just wasted could have bought some Ben Ten stickers or a Peppa Pig magazine!
"With older children, if they don't do paper rounds, why not pay them an equivalent wage for doing jobs around the house. If they are only getting paid a few pounds for mowing the lawn or washing the car, they'll soon think twice about spending it frivolously."
Danny Cox, from IFA Hargreaves Lansdown, says: "I was brought up with pocket money being paid at Saturday lunchtime after the "jobs" had been done and used this with my children as well. When they needed to buy bigger purchases such as push bikes, I and other relatives offered them extra jobs to earn more toward their purchase and matched them a pound for every pound earned – car cleaning etc. This didn't work perfectly, there were occasional tantrums but both are over 18 now and pretty sensible with money. I have also tried to drill into them that debt is bad – so far so good on this one."
Andrew Swallow, from IFA Swallow Financial Planning, says: "Although I can't say it worked with all of my children the best saving tip I ever tried to teach them was to WAIT for things.
"Many a time they would want the latest game or CD and we would ask if they had enough money from their pocket money or Christmas / Birthday money and many was the time when they would have to wait until their next "pay day" to get the item they desired. It was hell for the parents but it did teach them to wait (if not save in advance!)"
According to the blog wealthvisor one of the top tips for parents keen to introduce good money habits is through budgeting techniques. "Once your child has a steady allowance, or income from a part time job, it is important to explain budgeting. However, children will be more inclined to learn this skill if they see their own parents employing budgeting techniques first. Practice spending habits that are visible to, and imitable by children. Examples include: sticking to a grocery list, carefully considering all available information in regards to large purchases, and living below your means."
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