The cost of a mortgage or rents, meeting monthly utility bills, shelling out for a new car – all headaches most people get to worry about from their 20s. But while some may struggle to pay their bills after a few too many nights out at the start of the month, others will have a tightly followed plan for their repayments.
So what is the difference between the savvy saver and the more knee-jerk spender?
Experts believe it is all about the age you learn how to spend responsibly. Adult money habits are typically set by the age of seven, according to a large-scale study by the government’s Money Advice Service and behaviour experts at Cambridge University.
By then, most children have grasped how to recognise the value of money and are capable of complex functions such as planning ahead, delaying a decision until later and understanding that some choices are irreversible, the report says.
Tomorrow marks the start of Global Money Week, a worldwide initiative to help children make smart financial decisions and learn that “money matters matter”. But for many young people in the UK, it’s a matter of too little, too late. “The habits of mind which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life,” says Dr David Whitebread, the co-author of the study.
And this core behaviour is very likely to influence their financial decisions when they are adults, he says.
The study also urges parents not to underestimate their own good and bad money habits. “Since young children have few monetary resources they control independently, it is the basic approaches and skills which are modelled, discussed and demonstrated by parents that are likely to be influential levers, instilling efficient habits and practices,” it says.
Parents who choose to help their children learn how to plan ahead, reflect on the past and self-regulate can make a huge difference in promoting good financial behaviour in the future, explains Whitebread.
According to a survey by M&G Investments, the vast majority (83%) of parents recognise the value of teaching their children about money. However, this concern does not always carry through to practice – one in six do not feel confident enough to do it.
More than one in every four parents think children should take responsibility for understanding money themselves.
“I understand that, for parents, it isn’t particularly attractive to train a child about adult things like money and inhibition,” says Dr Sam Wass, lecturer in developmental psychology at the University of East London, who appears on Channel 4’s The Secret Life of 5 Year Olds.
“There’s joy in the fact that young children are spontaneous and live life in the moment, unfettered by adult problems. But teaching children about money when they are young is a good way for parents to help them learn to delay gratification, so that the child thinks: ‘I’d like to do this but I’m not going to’. Hard evidence suggests, if you want your child to do well in life, the earlier you can start trying to teach them inhibition and self-discipline, the better.”
He points to research that has shown people in prison frequently have poor impulse control, a personality trait that can affect relationships and long-term health.
But how should a parent try to teach their child to spend responsibly? One simple way is to give them pocket money and then help them to analyse and learn from any foolish spending decisions.
In 2017, Halifax’s annual pocket money survey revealed that parents usually wait until their child is just over seven – on average – before they start handing out pocket money.
Another is through board games which can help teach financial responsibility. Pop to the Shops, a shopping board game for five-to-nine-year-olds, has been one of Orchard Toys’ top 10 bestselling board games every year for the past 15 years.
To win, players must use fake coins to purchase everyday grocery items from various shops around the board, and give the other players who visit their shop the correct change. If they don’t have enough money, they must purchase a cheaper item.
“It acts as a conversation starter about money – parents can fill in the gaps,” says Orchard Toys product manager Rachael Sutcliffe.
Last month, after identifying the gap in the market for another money game, it launched Money Match Cafe. This is aimed at five-to-eight-year-olds. Players must recognise and add up different denominations of coins to match their cards and serve food to “customers” – the child’s cuddly toys.
There are also some pocket-money-tracking and payment apps, such as RoosterMoney and goHenry, which are designed to be used by under-sevens, and which boast that they can help children develop good money habits.
This is dependent on the children receiving enough pocket money to need an app to track their spending, which the Halifax research suggests is not always the case.
Surprisingly, given the research about habit-forming in young children, there are very few gaming apps that can help under-sevens – Pigby’s Fair, developed by NatWest, being a notable exception.
In this, children who solve basic puzzles will earn virtual money selling what they have made at different stalls in a fair, then spend or save it.
But the need to shift virtual money around, and take into account interest payments and pocket money bonuses, makes it a complex financial education tool. There are plenty of online games which focus on coin recognition and counting with money, such as the BBC’s Igloo Shopping game or Top Marks’ Coins Game.
So what if children find such games boring? An exciting (and free) real-world option for parents to use is a visit to Metro Bank. Although, like most banks, it does not allow children to open an account until they turn 11, it specifically tries to offer young children a chance to learn about money inside its branches by inviting kids to use the “magic money machines” to count their coins.
Children who accurately guess how much was in their piggy bank get a prize, and free lollies are handed out when the coins are exchanged for banknotes. The bank does not take a commission from the transaction.
Making it all child’s play
At six years old, my daughter Flora is getting to grips with her finances early. She tested out a number of games aimed at teaching children her age the value of money.
She enjoyed them all, but best, in her view, is Money Match Cafe, a board game where she must work out the value of different denominations of coin in her imaginary restaurant, her “customers” being her stuffed toys.
“It was really fun because you get to serve food to your own fluffy toys on a little tray with a napkin on it, and then you can hug them,” she says.
“If you’re six and you play this game, you’ll learn that you might not have the right amount of money for what you want to buy. You just have to cross your fingers and hope.
“It’s a good challenge, and I enjoyed adding the coins up to see how much they made. But I don’t like the name. Money Match Cafe is not a good name for a café. I would have liked it more if it had been Flora’s Cafe or Fantastically Baked Lunches.”
Seven out of 10 teachers think children are now faced with financial decisions earlier.
On Wednesday, Lifesavers – a new project which promotes financial education in primary schools – is hosting a conference to encourage teachers to join its programme and get free classroom resources and training. Almost two-thirds of millennials wish they had received more money advice at a younger age, according to a Santander survey.
Only a third of parents involve their children in discussions about their household finances, even though less than half of young people aged seven to 17 receive financial education at school, another survey shows.
Most adults believe their parents have had the biggest influence on their money behaviour. So when should they start trying to instil good habits? As early as possible before the age of seven, research suggests.