Why children need to understand money
Early financial literacy matters for children’s futures
Author
My children are starting to understand what money is for. They offer to do chores for pocket money, showing wildly different expectations. “I’ll do the washing up for 50p,” my daughter, aged 8, said. My son, 2 years younger, upped the amount to £100. I declined both offers, since I don’t want them to help out only when there’s a financial reward.
Still, talking about money and helping them use it has given them a basic understanding of cost and value. I want them to learn how to budget and save as they grow older.
Money is less visible than it used to be, as we increasingly pay digitally. As a result, money is more abstract and harder for children to understand, explains Mary Fletcher from the University of the West of Scotland, who studies financial literacy. That resonates with me – I remember thinking my dad got free money out of a hole in the wall with his Visa card, not realising that the cash machine was linked to his bank account.
Why financial literacy matters
Exposing children to basic financial concepts can shape their understanding of saving and spending, which can improve their financial management later in life. The age when children are first exposed to money-related issues plays a role in their later financial literacy. One review study notes that early interventions “can shape financial attitudes and capabilities, potentially leading to more financially responsible adults.” Despite these benefits, less than half of UK 7- to 17-year-olds are taught about money in school or at home.
“The age when children are first exposed to money-related issues plays a role in their later financial literacy.”
A lack of financial literacy is an issue in adulthood. In the UK, about 39% of adults don’t feel they can confidently manage money. Inadequate financial literacy is linked to higher debt, lower savings and poorer financial decisions.
Gaining a basic understanding of money early on matters, especially as children are already seen as consumers from a young age. They are increasingly targeted by advertisers and encouraged to buy products through games and social media.
Scams are common too. According to the UK Safer Internet Centre, half of 8- to 17-year-olds have been scammed online. Children are “not really given the understanding to step back and analyse what’s actually going on,” says Fletcher.
There’s also a gender gap in financial literacy, with women knowing less than men about financial concepts. This starts early, most likely before children enter secondary school (at age 11 in England). One study found that parents talked to boys about money earlier than to girls. The authors suggested that “financial socialisation in the home may be subject to a gender bias, which over time contributes to differential financial literacy knowledge levels between the genders.”
Teaching children financial literacy
An early introduction to financial concepts helped elementary school-aged children in one study develop a better understanding of monetary value and the importance of good financial habits. The children who were taught about finances were more likely to set saving goals for the long term, rather than spending impulsively.
In another study, of 817 children aged 4-6 and their parents, financial understanding was about 10% greater when parents regularly discussed with their children how they spend money. But 20% of parents avoided financial discussions altogether.
Fletcher, who co-authored this research, says that financial literacy allows children to have more “agency and self-control” over their finances later. She was inspired to study this topic after a student asked to study budgeting because his parents had never been able to manage their money. “Parents are sometimes afraid to feel that they’re burdening their children with discussion about money and at an early stage that this will give their children stress,” she says.
“The children who were taught about finances were more likely to set saving goals for the long term.”
Fletcher’s research highlights three approaches that encourage financial literacy in children: Caregivers can directly teach concepts relating to money, they can model their spending and saving behaviour for children to see, and they can help children learn by doing, for example by managing their own savings accounts.
She suggests introducing financial concepts in an “everyday way”, when children are beginning to form an understanding of numbers. During shopping trips, for example, parents can involve children in decisions about which items to buy. Acquiring basic numeracy skills such as counting or recognising numbers will also help them lay the foundations for later financial literacy.
Spending and saving physical and digital money
Children can have difficulty understanding that money is finite, explains Fletcher. Tapping a card in a shop doesn’t show children what something costs or how much is left in the account. Introducing physical money can help. We can also teach children how to calculate the change they will receive when making a purchase. As digital currency becomes the norm, another option is showing children how figures change in an app after they buy an item or add to a savings account.
Most children first learn about what money is for in the family home. Fortunately, there’s a growing recognition that financial literacy in childhood is important. In November 2025, for example, the UK government announced that it would make financial literacy a compulsory subject in the schools, although this requirement will not take effect until September 2028.
I’m now helping my own children expand their financial literacy. I explain how much milk costs in the shop, and allow them to choose their own toys with gifted money. They must stick to a certain amount, working out the value of the choices they make and learning which items are over budget. This year on holiday they bought baguettes themselves for the first time, using coins.
These small steps are already paying off. My daughter sometimes says “it’s worth it” or “that’s not expensive” when she realises how much something costs. I look forward to watching as her basic understanding of cost and value expands over time.
Author