Teaching financial literacy to children: From Piggy Bank to Bank Accounts

Posted 03.04.2020

Do your children understand the value of a pound? Financial literacy is not generally part of the school curriculum so it relies on parents to make sure their children have a basic understanding of money. While it might not seem obvious how a young child can benefit from learning about personal finance and money management, The Financial Health Exchange argues it’s essential. They claim that young adults who haven’t received some form of financial education as children are at a higher risk of making poor financial choices as they grow up.

Why do children need financial education?

We’ve all seen payday loan adverts on televisions, but remember, our children are seeing them too. Shockingly, over two-thirds of 13-17 year old’s have seen a payday loan advert on television. Payday loans are most commonly known for their extremely high interest rates. Some interest rates can often end up being over 100%! This can easily turn a small, seemingly harmless, loan into a difficult to manage debt.

Many are even targeted online through ‘pay-to-win’ advertising, predominantly for mobile games via microtransactions. This can result in young adults being 50% more likely to believe in online banking scams compared to their parents.

Without teaching kids financial literacy, they’ll be more prone to being taken advantage of, especially with online financial scams.

Learning financial literacy early can help young adults

Young adults aged 18-24 are at a much higher risk of debt if their parents don’t teach financial literacy at an early age. StepChange, a debt charity, claim that 14% of those they support with personal finance issues are under 25.

By the time our children become young adults, they have a plethora of financial challenges to take on. There’s the rising cost of higher education, difficulty accessing mortgages and later retirement ages to name a few. It can seem overwhelming to teach our children before they need to know about money management and savings accounts… But it can seem too late when the challenges are right in front of them!

So when is the right time to educate our children on how much money they should be saving and how to make smart spending decisions?

When to teach kids about managing money

Research has shown that between the ages of three and seven, children pick up fundamental financial habits about personal finance from their parents. This might seem difficult to believe, but just think about how many other lifelong skills your child learns around this age. Between the ages of three and seven, your child will be speaking in full sentences, running about the places and asking more questions than anyone has answers for!

This means if your children learn the wrong habits around how to deal with their bank account in early years, it can impact their attitude towards how to save money and manage their finances in adulthood. It’s much harder to unlearn behaviours than it is to learn good behaviours in the first place, so how do we make sure our children like the right lessons about how money works?

Simple tips to improve financial literacy for kids:

  • Talking about money from a young age encourages children to ask questions and see real-life applications of money.
  • Pocket money, especially when tied to chores, can help your children learn vital skills about earning money and spending decisions
  • Set up a bank account for your child so they can begin to get familiar with the concept of banking from a very young age
  • Consider setting up investments for them, such as a Junior ISA so they can begin to understand concepts surrounding long-term investment planning like compound interest and personal savings allowances.

Should I let my children look after their own money?

You may want to give your child a sense of ownership over their money, but that doesn’t mean you want to completely give up oversight of their money habits. A good compromise can be to split the money between a traditional piggy bank and a savings account.

You could split their money so some can be invested into a savings account, setting them up for the future, and the rest goes to your child. This gives them the opportunity to practice money management and financial independence.

How can I encourage my children to be responsible with personal finance?

One of the easiest ways to get children to understand the value of money is to let them learn how money works.

Delayed gratification is a difficult skill for many of us, but it can offer huge long-term benefits for our savings. Helping children practise these financial skills early will build life-long habits that will send them into adulthood with strong financial capability.

It can be tricky teaching children about the cost of their favourite toy – so why not show them? Taking them to a shop so they can actually understand what money gets them, and the concept that they might need to wait to get something they really want will pay off in the long run.

Of course, teaching children about savings accounts and money habits can be challenging but that’s why we’re here to help! Robert Gardner, Director of Investment Management from St James’s Place has published a children’s book ‘Save Your Acorns’. This whimsical story for younger generations helps children understand the importance of saving through consequences and scenarios they can relate to – and enjoy!

We offer this book to our clients with young children to help them understand the importance of saving, or you can buy it online.

If you’d like a copy of ‘Save your Acorns’ to share with your family, please contact us today on 01332 497670 and we’ll be happy to send one to you.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Financial Health Exchange, All Party Parliamentary Group on Financial Education for Young People Report: Financial Education in Schools: Two Years on – Job Done?, 2016, p17: https://financialhealthexchange.org.uk/wp-content/uploads/2016/06/APPG-on-Financial-Education-for-Young-People-Final-Report-May-2016.pdf

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