Financial education for children is a powerful agent for change. It can empower them to be more discerning in a world where convenience is favoured over thriftiness and often paid for through debt. Marilyn Pinto, founder of Kids Finance Initiative, talks to wknd. about why it is important to catch them young.
Why do we need to make our children financially literate? They will learn when they grow up.
Imagine you are 15 again and you know all about money that you do now. What a huge impact that will make to your life in terms of career choices, understanding of the opportunity cost, tradeoffs, relationship with money, and so on.
So, the main reason our children should be taught money skills from an early age is because this is a critical life skill that is not taught in schools or colleges and universities. I can tell you that there isn’t any educational institution that’s doing enough to teach kids about money.
Subjects like economics and business studies do not teach how to handle personal money. You can do an MBA programme and still not be taught how to handle personal money.
This is one skill that everybody needs; it doesn’t matter what career path a child chooses… be it a footballer, blogger, social media influencer, or any other traditional line of work, they will be smarter if they know how to handle money well. It is something that we as adults also understand. A secure financial life allows us to get better at our job, teach us how to do more with less, how to budget, know what debt to take, and what debt to stay clear of — all of these things are supremely important.
How early should we start teaching such skills?
Kids as young as five and six can grasp simple but crucial concepts like difference between needs and wants. The older the children are, the harder it is to teach them because a lot of their habits are already formed.
Some sort of formal education on money skills or consistent guidance from parents and families can significantly help.
Do you think giving pocket money from an early age can be a good learning exercise?
There’s no data to prove that giving pocket money to kids makes them better at handling it. There is no overreaching evidence, which says yes, if your kids have a debit or a credit card, they’re going to be great with money. These are all tactics. What I would recommend parents is to think a little more strategically. Make sure to educate children first and then introduce them to a budgeting app that can help them keep a track of their spending behaviour. Also, when you start giving pocket money, do it in cash rather than handing over a debit or a credit card. Cash is tangible which can give a better sense of how much is being spent. The other thing is consistency. Be regular when giving an allowance. The third point is to be very clear about what they are allowed to spend the money on. They need to be given very clear guidelines on where they can spend their money.
Also, I would suggest not linking money to chores. That’s like putting unnecessary leverage on the money, which is not really advisable. Inculcating good money behaviour will give a great advantage to our children.
Tell us about the workshops that you conduct on financial literacy for children.
We have two two-week workshops: one for 8 to 12-year-olds and the other for teens. Both programmes provide children with actionable takeaways. It involves interaction with parents at home for our budgeting exercise, understanding of a few financial products that almost every household uses, and much more. We equip children and teenagers with critical thinking skills that help them understand the implication of financial decisions and choices.
One of the topics discussed, for instance, is how credit cards work. How do you read the statements? What are the potential pitfalls and how can they be used to gain maximum advantage? Children learn about the importance of budgeting exercise, which is cornerstone of a healthy financial life. A lot of kids do this for the first time and find it extremely relevant and fun. The biggest takeaway is their changed perception about money. Parents often message me to say how their kids are more involved in planning and budgeting for their holidays and have become more aware of their spending behaviour.
Should children be good at mathematics to grasp such concepts?
Financial literacy is not a math-based skill. Let me explain. Financial literacy can help children become discerning about what majors to choose at the university level. It allows them to think critically, gauge the opportunities for work after education. Work out what is the return on investment on the education loan they plan to take. These are pertinent topics and can have a drastic impact on the choices the kids make. Through our workshops we also discuss things like what their first car should be and why should they be looking at a low-end, perhaps a second-hand car, and not take a fat auto loan to fund a high-end one. The priority right after college should be to pay off the education loan as early as possible and not take on more debt. All of these topics are extremely relevant, and it is not related to mathematics.
You have two daughters. How have they and other children benefited from these workshops?
My daughters were six and eight when they asked if they could buy a horse. I thought they were talking about a toy horse, but they were actually referring to a real one. To my surprise, they had looked up on the Internet and found a horse for sale that offered ‘free shipping’. It was apparently a retired racehorse which could be used as a family horse.
Of course, at that age, my girls had no clue about costing, trade-offs, so this incident initiated their learning on money matters. I asked them to find out what the overheads were if we were to buy a horse. How much would it take to build or rent a stable, and how much would be the running expense on a monthly basis. They made some calls and came back with some estimates.
I told them that we can do this but we might have to shift to a smaller accommodation, might have to pull one of the girls out from school, or maybe both to fund the expenses for the horse, because mummy and papa have limited incomes and we need to be judicious in our spending.
This conversation helped them understand the importance of making the right choices when it comes to spending money. Even now whenever they come to me to ask if they can buy something, they usually have done their homework in terms of comparison prices and why it is a good buy.
So, this is the kind of change you can bring in mindsets of children if you start talking to them like this and train them to see the larger picture. It can be amazing.
Parents of children who have attended our training workshops have also experienced such changes in their children. Parents often tell me, that their kids have started correcting them on money decisions.
It might be a little uncomfortable at that moment for parents to see their kids correcting them, but then again, a lot of parents breathe a sigh of relief knowing their kids will be okay (with money matters) when they grow up. They are developing good money habits and might not make the same mistakes as they did.
For instance, a lot of parents have told me about how their children now think before spending and do not fall for marketing gimmicks like buy-two-get-one free. I have heard parents say, that their kids corrected them and said let’s just buy one. We don’t really need the second one.
Now even though a lot of parents and caregivers know these things/ concepts theoretically, they still make a lot of mistakes. I still do, because if you have been doing the wrong thing for a long time, it is hard to correct the habits. This is why we do not have workshops for grown-ups.
It is important that we catch children young and educate them about personal finance skills, which will have a significant impact on their lives, help them build good money habits from a young age and be more responsible.
How has the response been?
Phenomenal. Parents often call saying their kids want to be involved in financial decisions, which is amazing. So many are actively helping parents plan shopping lists, where to go on holidays, they compare costs and benefits. It is simply fantastic to see children having such conversations at a young age.
What is the pricing for the workshops?
There are two two-week courses. One for kids aged eight to 12 and the second is for teenagers (13 and above). The fee for former is Dh1,200 and for latter, it is Dh2,400.