Money Lessons Start At Home

August, 2018

Attitudes about money are imbibed in a household with parental guidance

Including personal finance in school curricula is a favourite idea of many. They believe children should learn financial concepts at school to be better with money as adults. However, this is a difficult view to advocate.

A school has its role in shaping the child, and the parents have theirs. Children pick up language, math, science, arts and sports at school, life skills are quite in the domain of the household.

The Money Advice Service, UK, in collaboration with Cambridge University, has been conducting projects about developing financial capability in children and young people. In the publication, What drives financial behaviour? (April 2018), they classify the enablers and inhibitors under three heads— ability, connection and mindset.

Ability refers to the knowledge of financial products and concepts about money and financial numeracy. Connection refers to engagement and access to money and money transactions. Mindset refers to values and attitude such as saving, confidence, understanding money’s value, and the financial position of the household. Unsurprisingly, ability is not a driver of behaviour with respect to two key capabilities: day-to- day money management and active saving behaviour. So, teaching financial concepts and products will have no significant impact on how children managed their money. Key financial behaviours were influenced by the connection and mindset factors. And nurturing the right attitudes about money lies with parents and not the school.

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What can parents do? The study shows that money habits are formed in children by the time they are seven years old. Children learn from activities that help them connect how money works in the household. For example, a child who is handed over money to buy a fruit for herself, will find the experience of looking up the prices, making a choice, paying the money, counting the change, and enjoying the fruit a strong experience that enables a connect with day-to-day financial decision-making. For children, knowing that money is a limited resource and must be earned is an important lesson, compared to the simplistic assumption that money comes from the ATM and that swiping the credit card can buy anything. And, while planning a holiday, decisions about how the money is allocated for various activities enables children to understand opportunity costs.

Attitude to a financial situation is developed from the decisions that the family makes and the experiences children have in participating in such decisions. Households that exhibit anxiety when money runs short; households that are wary about borrowing; and in contrast households that are nonchalant about borrowing are all implicitly imparting attitudes towards money in the minds of children. Confidence about managing money comes in when parents actively demonstrate how to make difficult decisions with a limited resource.

The nightmare of young children kicking and screaming in the toy section of a store is something most parents will identify with. It is important to note that emotional intelligence and delaying of gratification can be taught by parents. Values are tough to impart unless they are lived by the household and reinforced consistently over time. Children have an innate sense of fair play and learn by observing whether parents seek instant gratification or postpone a decision. Planned postponing of money decisions is considered a strong influence on the mindset towards money. The study showed that about 40% of the variation in financial capabilities came from these connections and mindset factors.

While older children understand financial concepts, conceptual knowledge is mostly contextual. When a decision about taking a housing loan has to be made, understanding how the EMI is computed, etc. are all important elements of financial literacy to know and learn. But, placing these in a school curriculum several years before that decision has to be made, may not achieve much.



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