Are we failing our children on financial education?

They want to know about money and finance.

For some parents, talking money is more daunting talking about sex. Explaining how babies are made is easy; explaining how money is made is far more complex.

It would seem many of us are not alone.

In a survey commissioned by finance company Savvy in January this year, Australian parents seem ill-equipped to guide their children on finance and economics matters.

Some of the alarming takeaways from the survey (of 199 Australians) showed:

• A little over a third rated their children’s knowledge of finance and economics as “fair.”
• A third of parents have never discussed superannuation with their kids.
• 42.5% of parents have never discussed tax reduction with their kids.
• A bit over a third have never discussed investments or savings.
• 30% of those surveyed have either rarely or never discussed good and bad financial habits with their kids.
• Two in five parents don’t give out pocket money to their kids if they can earn it themselves; 21.2% provide about $50-100 per week.
• 46% of all respondents said they have high-school level knowledge of finance and economics; 35% said they have a basic, primary school level of education.

Given that our kids will grow up in a market economy, how do we educate them about debts, tax, and investments when we haven’t educated ourselves?

“Leave it up to the schools” 

According to the survey, over half of respondents said they should leave financial education up to the schools. However Savvy CEO and financial literacy advocate Bill Tsouvalas commissioned the survey to get a grasp on how literate parents are in finance and how that will affect the next generation.

“I am passionate about financial education,” Tsouvalas says, “I want finance and economics to be as important as English, maths, and science. However, there is a lax attitude to finance and economics in the Australian community. Money is a taboo subject; kids are raised having little to no idea how money works, and they’re expected to participate in a market economy when they grow up. They’re going to apply for loans, contribute to super, pay tax. All of this shouldn’t come as a surprise when they get their first paycheque.”

Schools might not be the best avenue to deliver a well-rounded financial education. According to the ABC, only 40% of Australian high schools offer economics subjects compared with more than 90% in the early 1990s; and most schools that do are selective entry schools or private schools.

Vince Scully, founder, and chief of LifeSherpa and financial adviser, says that the problem isn’t a “mathematical or finance problem, it’s a psychological problem.”

“Teachers are well equipped to provide learning in specific areas and many of the skills can be incorporated in maths, economics, commerce, or Health, Safety and the Environment, these lessons can be incorporated in the existing curriculum; compound interest, statistics, inflation, how the stock market works. But they don’t have the expertise or experience to do with the practicalities of making good financial decisions.” 

Ryan Watson, CEO and Head of Growth for financial advisory firm Tribeca Financial agrees.

“The responsibility first and foremost firm lies at home. We all know children are a product of their environment and take on the behaviours they see. When parents act with responsibility and structure with money, in most cases children will grow to be adults that carry on the same disciplined behaviours.”

“She’ll be right?” or cause for concern?

According to the Australian Financial Attitudes and Behaviour Tracker report developed by financial regulator the Australian Investments and Securities Commission and conducted by EY Sweeney in March 2018, 35% of respondents agreed with the statement “dealing with money is stressful and overwhelming.” 

Though Australia has had an unbroken streak of economic growth since 1992 (which as of writing, seems to be shaken by the COVID-19 outbreak), things will only become even more stressful if our children experience a world of recession or downturn. Ignoring things will only make it worse.

Scully says, “Over the past three decades, we are expected to provide for our own retirement, education and health. These were provided by employers or governments in the past. Our children are simply not equipped to deal with this nor are their parents in general. This is a great concern.”

“We live in a ‘tap and go’ financial society,” Watson says. “Unless we significantly increase our kids’ levels of financial education, we will raise a financially irresponsible generation that will live week to week.”

Strategies for teaching kids about money and finance

Tsouvalas says that much of kids’ lives are driven by markets and financial principles already; it’s just a matter of harnessing the everyday as an educational tool.

“Some of my extended families’ kids play video games where you have to ‘grind’ for coins in exchange for in-game items; that’s a market economy right there. When kids trade food in the playground, they quickly understand chocolate and chips are worth more than apples. These are all practical life lessons in economics and finance.”

Scully says that paying children just for doing what they’re meant to isn’t enough; demonstrating additional value such as picking up additional “unasked for” chores can teach them entrepreneurship.

“There is a delicate balance to be drawn between involving kids so that they learn but not so much they become scared, stressed, or overwhelmed. 

“Getting kids involved in family financial decisions to understand the meaning of money, how it is earned and how it is allocated as well as the usage of debt is useful. But parents need to be willing to share how much they make. Many couples don’t even tell each other!”

Watson says we need to teach kids about that proverbial ‘rainy day’. “We should be teaching them to save 25% to 50% of all money they earn or receive, such as from birthday presents, to save for a rainy day. This habit created early can last a lifetime and create real financial responsibility.”

Using apps like Spriggy, which helps parents dispense pocket money for chores, can teach kids budgeting and spending while giving them the freedom of using their own prepaid credit card is another real-world learning tool. 

As for formal education, Jacie Taylor, an independent financial adviser with Adelaide’s Periapt Advisory, says parents need to kick up more of a fuss about financial education to get it back in the classroom.

“Individuals need to be vocal about it,” she says. “If parents want their kids to learn about it at school, then at the primary school level they could raise it with their children’s teacher. At the high school level, it would probably be more appropriate to go through the leadership team. Governing Council Meetings might also be a good forum to request it. 

“If parents don’t feel comfortable that they know enough themselves, they can learn alongside their kids with tools such as the ASIC MoneySmart website. Scott Pape (aka The Barefoot Investor) has written a follow-up book to his bestseller specifically for families who may borrow it from a library; that has some great advice within it.”

With all this in mind, when it comes to “the money talk,” is your family prepared?