Money is something you and I have a complex relationship with. It’s a relationship that starts at an early age and evolves over a lifetime. You make decisions about money that impact your financial situation and these in turn affect your feelings and future behaviours.
Below I take a sideways look at how positive money habits are learned from an early age. The earlier you teach kids a skill through programs like Investars, the bigger the impact later in life.
Money lessons I didn’t know I was learning
My Mum and Dad were seemingly from the old school. The school of you learn through doing, you learn through experience, you ultimately learn through getting it wrong. Which I did, on many, many occasions.
This extended to finances as much as it did falling out of trees, getting lost, breaking bones, missing the last train home and a plethora of other areas I’ve still yet to master or fully understand transitioning from childhood to qualify as an official ‘adult’.
A relationship with money
It’s worth thinking about money as something with which you and I have a complex relationship. Your money and within that your personal finances is not a fixed entity, but rather a complex of data points, challenges and opportunities you circle around, interact with and have feelings about.
When I was growing up in the 1980’s in rural Somerset, physical money - coins and notes - made this great abstract idea tangible. You could hold it, feel it, taste if you wanted. You got a sense of what was a lot and what was a little. But today in a cashless society, we’re losing a hands-on conduit into the financial world.
Currently the OECD (Organisation for Economic Co-operation and Development) has shown that in many developed countries, one in four students struggles with the simplest of financial task — from recognising the value of a budget to understanding a bank statement or pay slip.
Put very simply, financial literacy is the difference between living from pay day to pay day, and being able to afford the things you want and need, to building wealth that works for you, which is why financial literacy is so important. So where, I ask myself – do I start with my kids…..
The Bank of Mum and Dad
Parents worry about most things, but how we introduce our kids to money is something that tends to creep up on us. We begin to wonder when we should start giving money to our children. Then how much exactly, and for which jobs around the house.
We start to worry about the example we’re setting our kids, along with the lessons we’re teaching them and what kind of impact they’ll have down the line. Is it enough to just give them a wallet and let them dig out coins down the backs of sofas? Or should there be something more formal? Managing money in a digital world is a basic 21st-century literacy, and one our children can’t afford to miss out on.
Bridging the knowing-doing gap
An observation of adults, rather than kids, is that when it comes to money we have a tendency to make poor decisions. The reason for this is that there’s a profound ‘knowing-doing gap’ that owes to the difficulty of implementing things that are psychologically tough, even if we know them to be true.
Smoking is a great example of this, as time went on, science began to tell us in great detail about the impact of smoking, and however millions of people still smoke. In financial terms, as we get more and more information about the impact of our financial behaviour, many of us will make better decisions, but there will always be a significant minority of the population that makes ill-advised decisions about their finances. Why?
The painful reality is that formal education probably does not work — at least not much beyond six months. After that, it is like any other abstract subject taught in a classroom, mostly forgotten. Ask me about my A level Biology course and I would struggle to label the anatomy of a fish, with the accuracy I did 20 years ago.
The answer lies in doing, thinking and feeling
Make it hands-on: Teaching finance is not well-served by the standard format of classroom lectures. Instead, if we want to make today’s students proficient in budgeting, help them understand credit and teach them about investing, a better approach would be a learning experience from real life.
Internships at local businesses such as we offer at Zurich or programs such as our Investars initiative do better at showing students how to do these tasks than the lecture-and-test approach.
Repeat it: Unless financial literacy is constantly reinforced, it fades pretty fast. Core concepts need to be repeated and reinforced. Rather than teaching a body of information to remember, education also needs to give students the skills to think critically, to puzzle through problems, to ask questions. This broader approach to problem solving and independent thinking is at the core of opportunities we offer to students in the UAE.
By creating practical financial literacy programmers we can encourage kids – including my own mercurial three - to understand money, appreciate the relationship we all have with it and be the captains of their own financial futures.
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