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How to Create a Child’s Savings Habit

Most of our habits, both good and bad we learn in childhood. By encouraging your child to save money early in life you are preparing them for a lifetime of financial responsibility and prosperity.

Einstein once referred to compound interest as one of the wonders of the world. A great example of the power of compound interest comes from the selling of Manhattan for a handful of beads:

In the early 1600s, the American Indians sold an island, now called Manhattan in New York, for various beads and trinkets worth about $16. Since Manhattan real estate is now some of the most expensive in the world, it would seem at first glance that the American Indians made a terrible deal. Had the American Indians, however, sold their beads and trinkets, invested their $16 and received 8% compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over. That is the power of compound interest over time.

Warren Buffett, one of the richest men in the world uses a snowball analogy to explain compound interest:

“Life is like a snowball. The important thing is finding wet snow and a really long hill”

The really long hill referring to the effect of time on the growth of money.

Here is a simple example. If your child saved £10 or $10 per week over their working lives of 40 years and received an interest rate of 5% they would accumulate £61,040. However if they started 10 years earlier, that would be £106,740. That’s a difference of over £45,000 from an extra investment of £5,200.

Given that time can play such an important part in the growth of money, the earlier a child starts his or her savings habit, the greater will be their return. Here are 5 top tips to encourage your child to start saving.

  1. Lead by Example – have a jar or money box where you deposit your spare change. Children learn more by what you do than what you say. By wanting to follow your example your job is half done.
  2. Add interest – when your child is old enough to understand the concept of interest you can act like a bank and top up their savings. Keep the numbers simple by adding 1 coin for every 5 or 10 they save. It’s a good opportunity to introduce some simple yet important money lessons.
  3. Open an account – go with your child to the bank and open a savings account. Then make an event of going and making a deposit. Your child will make positive associations with the act of paying in money.
  4. Save for a purpose – it’s much easier to create an interest in saving (excuse the pun), when there is a strongly desired outcome on the end of it. Encourage your child to save for a holiday, a particular toy or something they value.
  5. Consistency – For saving to become a habit it must be done regularly and often. Then gradually, like brushing your teeth it becomes automatic and habitual. If you give an allowance encourage your child to immediately put some money away. If they get extra for chores or birthdays encourage them to allocate a percentage to saving.

In all the above examples it should be emphasised that for the money saving habit to stick it must be enjoyable and rewarding. The word encourage is used rather than coerce or force. Just as compound interest will reap rewards over time, so too will the investment in time spent to encourage the savings habit in your child.

We recommend the Moonjar system for encouraging children to save. Please visit The Financial Fairy Tales for details

US Educators Not Prepared to Teach Financial Literacy

Importance of Financial Literacy

Eighty-nine percent of teachers agree or strongly agree that students should take a financial literacy course or pass a test for high school graduation.
 
Current Teaching
Only 29 percent of teachers are teaching financial education in any way—in existing classes or special classes on finance topics. And fewer than 20 percent of teachers reported feeling “very competent” to teach any of the six personal finance topics surveyed.
 
Using State Standards
Nearly 64 percent of teachers feel not well qualified to use their state’s financial literacy standards. In fact, the study found no influence of state mandates on whether a teacher had taken a course in personal finance, taught a course, or felt competent to teach a course.
 
Teacher Education Faculty
Teacher education faculty felt no more competent to teach specific financial concepts than did K-12 teachers, and they were not more familiar with state financial education standards.
Read the full release here

>The Global Approach to Financial Education

The Global Approach to Financial Education

Several countries, listed below, most of whom are members of the Organization for Economic Co-operation and Development (OECD), have developed and implemented national strategies on financial literacy.

Australia: In 2005, the government established the Financial Literacy Foundation (FLF) to implement a national literacy strategy. The creation of FLF was a key recommendation put forth a year earlier by the country’s Consumer and Financial Literacy Task Force.

The FLF worked to integrate financial literacy into the educational system; to develop resources and support for teachers; and to provide financial literacy materials for the workplace.

In July of 2008, all of FLF’s functions were transferred to the Australian Securities and Investments Commission, in order to consolidate the Australian government’s financial literacy response under the Commission and to strengthen its role in safeguarding Australia’s economic reputation and well-being.
Ireland: In 2007, the country’s Financial Regulator embarked on a major study to assess the financial capability of Irish consumers. Largely based on the U.K. Financial Services Authority’s survey, the face-to-face Irish survey took place between October 2007 and January 2008.
Although they were still in the early stages of their work, the regulator issued a Preliminary Report on Financial Capability in Ireland in June 2008. The final report has not yet been published. The broad objective of this work is to establish a baseline measure for financial capability, against which future research in this area can be compared.

Concurrently, under the supervision of their National Steering Group on Financial Education, Ireland has developed a Financial Competency Framework.

The Netherlands: Under the working title CentiQ, wijzer in geldzaken (Sensible with Money), around 40 partners from the financial sector, the government, information and consumer organizations and science, signed an agreement, in 2006, to work together on financial education. Together, the partners will carry out a strategic agenda that includes programs and projects aimed at improving the financial knowledge and skills of consumer and stimulating an active attitude, so that consumers can make conscious financial choices and become financially competent.

In 2007 and 2008, CentiQ carried out a number of studies and inventories in order to form a basis for the strategic agenda and the CentiQ Action Plan. All CentiQ programs are based on several strategic starting points, including:
•Household finances – These form the basis for all of the programs.

•Prevention is better than correction.

•The program is based on easily accessible and practical resources.

New Zealand: A Crown agency, the Retirement Commission, led the development of New Zealand’s National Strategy for Financial Literacy, in 2008. The agency has also undertaken comprehensive “financial knowledge surveys”, with the most recent being completed in 2009.
The New Zealand Retirement Commission also created Sorted (http://www.sorted.org.nz/), an independent government-funded organization dedicated to helping New Zealanders manage their personal finances, throughout their lives. In 2009 the Ministry of Education also took over all responsibilities for financial education in schools.

Singapore: The national financial education program, MoneySENSE, was launched in October 2003 to bring together industry and public sector initiatives in financial education, to create a long-term, sustainable program to enhance the basic financial literacy of Singaporeans.

The first National Financial Literacy Survey was conducted in March 2005. The survey found that, in general, Singaporeans have fairly healthy attitudes towards basic money management, financial planning and investment matters. Through its national MoneySENSE program, the Government of Singapore continues to support initiatives that enhance the basic financial literacy of consumers.

The United Kingdom: The Financial Services Authority adopted a National Strategy for Financial Capability in 2003. This strategy included a long-term, complex plan to target young people through new curricula, and savings accounts, to provide generic advice to the population at large, and to create new public programs for retirement savings.
Under the awareness portion of its National Strategy, the Authority has reached 8.4 million people, as of November 2009.

The United States: In 2006, the Financial Literacy and Education Commission created “Taking Ownership of the Future: The National Strategy for Financial Literacy”. In addition to the 26 “calls to action” it published in its 2006 Strategy, the following year the Commission developed six new calls to action, where it wishes to concentrate its efforts.
In 2008, the President’s Advisory Council on Financial Literacy was formed. In December 2009, the Departments of Treasury and Education outlined the first step in their efforts to promote financial capability among the nation’s youth. Based on the findings of a new national financial capability survey, the National Financial Capability Challenge (http://www.challenge.treas.gov/) was created. This is a national award program, which aims to encourage financial education in schools across the country and recognize high-performing teachers, students and schools.

The OECD: In 2005, this 30-member group of countries published the first major international study on financial literacy.47 The study defined financial education, outlined the benefits of increased financial literacy and identified a life cycle of key decisions. In 2008, the OECD launched the International Gateway for Financial Education, which serves as the first global clearinghouse on financial education. It seeks to raise awareness; ensure a wide dissemination of research, best practices and guidelines; and build a worldwide network of government stakeholders on financial education.

Key Links

Australia

http://www.understandingmoney.gov.au/

Ireland

http://www.financialcapability.ie/

The Netherlands

http://www.wijzeringeldzaken.nl/

New Zealand

http://www.financialliteracy.org.nz/

Singapore*

http://www.moneysense.gov.sg/

The United Kingdom

http://www.fsa.gov.uk/financial_capability/

The United States

http://mymoney.gov/

The OECD

http://www.oecd.org/

From Leveraging Excellence: Charting a course of action to strengthen financial literacy in Canada

>Financial Education in Schools

>Adapted from an Australian Government report investigating Financial Literacy among women.

Financial literacy programmes in schools: This approach to improving financial literacy is advocated in Australia and internationally, by government and the business sector, because it reaches a large part of the population and is a means to teach basic concepts to young people before they face financial crises or have to make major financial decisions.

There is ongoing discussion about where in the curriculum financial studies ought to be incorporated: mathematics and personal development are two favoured learning areas. Also under discussion are questions of when financial education should start and what should be included (ASIC 2001). While discussions continue, government initiatives have begun in Australia, the USA, Canada and the UK.

Financial education in schools has the potential to allow young people the opportunities listed by the UK Financial Services Authority (1999):

•to develop numeracy, literacy and IT skills in the context of personal finance;

•to develop an understanding of the nature and use of money in its various forms, including credit and debt;

•to learn how to access, interpret, question and evaluate financial information and advice;

•to learn about the consequences of financial decisions and about consumer rights and responsibilities; and

•to learn how to weigh up risks and benefits in order to choose appropriate solutions to particular financial needs.

Such a suite of skills, they believe would equip young people to deal with financial situations as they arise.

One of the main limitations of financial education in schools is that students may have a limited interest in learning about things that have little immediate relevance to their lives. While they may be keen to learn about buying a car, they are unlikely to be interested in superannuation. Further, as the range of financial services and products continues to grow, it is not feasible for schools to provide comprehensive financial education.

The effectiveness of financial education in schools is also affected by limitations on time available and teachers expertise.

7 Quick Tips for Teaching Children About Money

Here is a video we have put together which suggests 7 Quick Tips to help teach children about money. We hope you enjoy it.