How to teach financial literacy to kids

a collection of children learning about money

Teaching your kids financial literacy is one of the most valuable life skills you can pass on as a parent. In fact, 96% of UK parents say it’s important for young people to understand money but, crucially, 84% also acknowledge their child hasn’t received any personal finance education at school. While there’s a huge value placed on practical skills in addition to traditional subjects, it also reveals the importance for parents and caregivers to share this knowledge.

This guide is designed to help you introduce key financial concepts in practical and engaging ways. From understanding the importance of financial literacy to teaching topics like saving, budgeting and investing, we’ll break down the essential information and strategies you need to build your child’s confidence with money management.

What is financial literacy?

Financial literacy is having the knowledge and understanding of key financial concepts, as well as the ability and skills to put this into practice, making informed decisions about your finances and navigating all financial aspects of life responsibly.

Having good financial literacy includes understanding day-to-day financial matters, as well as grasping the importance of safeguarding against financial losses and planning for long-term goals. It’s all about being able to handle money well, so that your choices support financial stability, resilience, and wellbeing through different life stages.

Mother teaching daughter sitting at a laptop

The importance of learning money management skills

Learning money management skills is integral to achieving personal ambitions, such as owning a home, setting up a business, or planning for retirement. While such goals might seem far in the future for your children, kids’ attitudes towards money are established early in life – typically by the time they’re seven – making it important for parents to think about.

This is further emphasised by the research that suggests children who have had “a meaningful financial education at home or at school” are more likely to save, feel confident about money and use a bank account. Having financial knowledge and skills supports personal goals, but also helps children and young people to participate better in the economy, boosting things like entrepreneurship, social mobility, and inclusive growth within a country.

When compared to countries with similar economies, Britain has one of the lowest rates of financial literacy among adults. Only 47% of adults surveyed scored five or more (out of seven) on financial knowledge questions, while The Organisation for Economic Co-operation and Development (OECD) average is 62%, with participating countries averaging 56%.

Children who have had “a meaningful financial education at home or at school” are more likely to save, feel confident about money and use a bank account.

Source: Money and Pensions Service

The countries that performed the highest in financial literacy tests

Hong Kong (84%)

Korea (77%)

Estonia (73%)

And the worst performing countries were:

South Africa (31%)

Malaysia (33%)

British Virgin Islands (35%)

Teaching children can change this. While financial education is part of the English secondary school curriculum, it makes a difference to start teaching the skills from a younger age because early attitudes influence the ability to manage finances confidently as an adult.

There’s plenty of good news too though, as research has indicated a generation of young people are interested in becoming more financially literate. Over half (51%) of children aged 6-14 feel it’s important to save money for the future. Their feelings are backed up by actions too. When asked what they would do with a £5 note, 61% said they’d save it either by putting it in their moneybox (50%) or asking their parents to look after it (11%). 12% of kids said they would spend it right away.

Over half (51%) of children aged 6-14 feel it’s important to save money for the future.

Source: HSBC

Parents are fueling this financial curiosity too by being more proactive with knowledge sharing at home:

64% talk to their kids about how much everyday items such as groceries cost

53% emphasise the importance of children learning to use bank cards, apps, and websites safely

This is the kind of behaviour we’d encourage more in order to improve financial literacy in your family. Next up, we’ve got more actions you can take to teach some of the main areas of money management.

The essentials of financial literacy

It’s generally agreed that there are four fundamental pillars of personal finance, so it’s a great place to start when teaching kids. They are:

Budgeting
Saving
Investing
Debt management

Father teaching daughter sitting at a laptop

What’s budgeting?

When explaining budgeting to kids, you might want to consider using an asset they’re more fond of than money. For example, sweets or chocolate. So, every month, you’re paid 30 sweets; budgeting means you need to make a plan so those sweets last until the next time you’re paid. You have to decide how many sweets you eat, how many you want to save, and if you want to share (or sell) any. If you stick to the sweet budget, they’ll last and you won't run out before getting more. Put simply, it’s the same with money.

Tips for teaching kids about budgeting

Give them their own pocket money

It’s a personal parenting choice, but giving pocket money is a great way of encouraging kids to then plan how they’ll use it. You can introduce the concepts of spending and saving to see how they’d like to manage their own money. A lot of banks have their own accounts designed for children too, which can be accessed via apps with parental controls.

Play board games

Not all budgeting lessons have to use real money. A lot of board games centre around money management and being rewarded for making sensible, strategic choices to earn the most. The idea is to learn financial concepts while having some, often competitive, fun. Some of the most famous are Monopoly and The Game of Life, both suitable for anyone aged 8 or older (although there’s also junior versions for 5+), and Pop to The Shops (aimed at ages 5-9). And it’s not just old school board games. Newer video games, such as Animal Crossing, cover financial concepts, such as mortgages.

Attach pocket money to tasks

Consider attaching some, or all, of the pocket money to tasks. To explore the idea that money is typically earnt, you could tie their pocket money to simple chores or responsibilities. This gives them the opportunity to influence how much money they receive.

Let them plan a family outing with a budget

For older kids, you could give them the task of planning a day out with a set budget. They’ll have to research activities, think about travel and food costs, and monitor spending on the day.

What’s saving?

Kids often get given a lot of things without much thought about the learning opportunities. It’s not just parents, but grandparents, friends and other family members will gift items and before long your family will accumulate a lot of stuff – without the time and patience that saving requires.

One of the best ways of introducing saving is to explain why we need to save. So if there’s something they really want, like a new toy, you can explain that it costs money but they can save up for it. Instead of using their pocket money on little things regularly, they’ll need to set aside some money for the thing they want. This also emphasises how interlinked saving and budgeting are. By saving money over time, they’re practicing budgeting too. Once they’ve saved enough to buy the item they really wanted, it’ll feel like a great reward.

Tips for teaching kids about saving

Start small

Patience is hard for kids, so try and encourage the first couple of things they save for to be more affordable. That way, the reward for their hard work saving up will come sooner and they’ll hopefully realise the value of saving for longer for more expensive items.

Encourage sound spending decisions

At venues, at the shops, even the petrol station – it feels like there’s always a lot of things designed to get kids’ attention. Whether that’s something to eat, a ride to play on, or a novelty gift, you can try to get your children to focus on making decisions with money in mind. Talk about your own budget and what factors you try to consider when making choices about what (and what not) to buy.

Tell them about things you’re saving for

Similar to above, you might want to share some of your own savings goals. For example, if you’re saving for a holiday, a new household appliance or anything else, by sharing insight into how you’re doing this and for how long, you’re setting an example of good financial habits.

Mother and Child putting money in a piggy bank

What’s investing?

To explain investing for children, try telling a story about a magical tree grown from an apple seed. Rather than immediately eating the apple, you decide to plant the seed and – with the right conditions – the seed grows into a tree which provides more apples. This takes patience, and the tree might not always be as fruitful as you’d like, but it has the potential to grow more apples from the original ‘investment’ of the seed.

Investment takes an initial amount of money with the aim of growing it. The ways you can invest are varied – for example, in physical assets such as property, buying shares in a company, or investing in mutual funds – but the idea is always the same.

Tips for teaching kids about investing

Invest on their behalf

When your children are younger, you may choose to invest for them and their future. Popular options include Junior Individual Savings Accounts (ISAs) as a tax-efficient way to save and invest your money in the UK. As they become older and more financially savvy, you could encourage kids to invest themselves by offering to match their investment contributions.

Talk about long-term growth

As and when you decide to show your kids what you’ve invested for them, it’ll demonstrate the value of patience and long-term growth. Investment typically takes years, not days, and you can showcase that. Similarly, it’s important to discuss the risks of investing, including the reality that you can lose your investments.

Find online games

Because of the risks associated with investing, it’s much safer to learn in a simulated environment. Games designed to teach the concepts of investing include Build Your Stax and How the Market Works. You can also play your own game, picking a hypothetical portfolio of companies and monitor how they perform over time. It helps to tie it to your child's interests – for example, if they’re into video games, watch the performance of companies like Nintendo or Sony on the stock market.

Child learning about investing with a tablet and laptop

What’s debt management?

Debt management is best explained in its simplest form: borrowing. So ask your children to imagine they’ve borrowed a game to play from a friend, but promise to give it back afterwards. Taking on debt, where you borrow money and agreeing to return it, is similar. But interest is charged – which is like if you’re borrowing the game and the friend asks for some sweets when you return it.

Teaching debt management can be tricky because there’s quite a few terms to get your head around, including credit. Credit is the ability to be able to do the above – to be able to obtain money, goods or service, based on the agreement the payment will be made later (typically with interest charged). But credit can also refer to an individual's borrowing history; a credit report is the financial record of this history of borrowing and repaying debts.

Tips for teaching kids about debt management

Expand on the things you’ve taught about sensible spending decisions

Expand on the things you’ve taught about sensible spending decisions, giving examples of what you might borrow money for and what it might not be a good idea to borrow for. As an example, the purchase of a car to drive to work compared to using a store credit card to buy clothes. As children get closer to the age where they start building a credit score (18), it’s important to explain the impact of purchasing decisions.

Talk about the commitment between lender and borrower

Parents often lend their kids money without any consequences around when (or if) they pay it back. It’s important to discuss that this isn’t the same when you enter a credit agreement with other lenders, such as a bank or credit card company. Explain how late repayments not only mean additional interest charges, but it’ll impact on your ability to take on more credit.

Try not to make it too frightening

Debt is a normal part of life, so while parents need to explain the risks, it’s important to maintain a healthy relationship with money. Talk about the different types of debt (e.g. mortgages, student loans) and how learning to handle them responsibly can set you up for lifelong financial stability.

Mother teaching daughter about debt management with a laptop

General advice for teaching kids

Tailor it to them

Throughout this guide, our explanations have been quite simple. That’s a great place to start, but you know your children best. So you can tailor your teachings to their academic abilities, interest levels and learning style. You can also decide what’s relevant to their age – for example, for older children with part-time jobs, you could charge them interest on any money you lend. You could put these interest payments into their savings account if you want to instil the lesson but not collect the money.

Focus on practical experiences

Whatever the experience levels, focusing on practical experiences is likely to be a more engaging way of learning. You can start with substitute money (use sweets or toys, for example) and use role play before moving on to practising with the real thing. Little things like letting them use self-checkout machines and counting spare change can be a great start.

Accept mistakes

Children are likely to make mistakes. After all, they’re learning – it can be tempting to overspend and forget about a budget. They are only young and don’t yet have the same responsibilities as adults so it’s important to remain encouraging and keep it engaging. Focus on what can be learnt from any mistakes.

Remember the example you set

We’ve briefly touched on how you can talk openly about your own budgeting and saving decisions, but just remember that children pick up on your own behaviour – even when you might not be paying attention.

What to do if you don’t feel confident teaching financial literacy

Your relationship with money may have been formed by the age of seven, but that doesn’t mean it’s too late to start a new one. It can often feel embarrassing to admit that your own financial knowledge isn’t great, but it’s common. In a 10-question test of financial literacy, including frequently discussed financial topics like inflation, taxes, pensions, and savings, 73% of adults fell below the benchmark (scoring less than 6.5). Only 5% could answer all 10 questions.

So remember that if you weren’t taught these skills, you’ve learnt what you do know yourself. The main message is not to let a lack of confidence deter you from further learning; it’s never too late. One of the reasons it’s important for parents to learn and pass on financial skills is because of the value of compound interest if you start saving for your children from a young age. Compound interest is when your savings grow because you earn interest not only on your initial investment but also on the interest that accumulates over time. For example, say you invest £5,000 at an annual interest rate of 4%, compounded annually, for your child starting at birth. If left untouched:

At age 18: £5,000 grows to approximately £10,121
At age 30: it grows to approximately £16,006
At age 50: that original investment will now be worth around £26,659 (if the rate was fixed)

73% of adults fell below the benchmark (scoring less than 6.5) in a 10-question test of financial literacy.

Source: Wealthify

That’s why it’s important to gain the right knowledge to make your money work harder for you (and your children).

One of the best ways to show the value of compound interest to kids (and adults) is by asking: would you rather have £1 million today or a penny that doubles every day for 30 days? Then show then the maths that by starting with just a penny, the doubling effect over 30 days leads to an astonishing amount of over £5.3 million:

The value of a penny that doubles every day for 30 days
Day 1: £0.01	Day 11: £10.24	Day 21: £10,485.76
Day 2: £0.02	Day 12: £20.48	Day 22: £20,971.52
Day 3: £0.04	Day 13: £40.96	Day 23: £41,943.04
Day 4: £0.08	Day 14: £81.92	Day 24: £83,886.08
Day 5: £0.16	Day 15: £163.84	Day 25: £167,772.16
Day 6: £0.32	Day 16: £327.68	Day 26: £335,544.32
Day 7: £0.64	Day 17: £655.36	Day 27: £671,088.64
Day 8: £1.28	Day 18: £1,310.72	Day 28: £1,342,177.28
Day 9: £2.56	Day 19: £2,621.44	Day 29: £2,684,354.56
Day 10: £5.12	Day 20: £5,242.88	Day 30: £5,368,709.12

The role of the financial services industry

Throughout this guide, we’ve suggested ways to make financial education more interesting for kids – by playing games or telling stories, for example. The experts suggest something similar; HSBC re-launched a children’s book Fairer Tales: Princesses doing it for themselves which explores financial literacy. It’s a set of “reimagined fairy tales where princesses use their financial knowledge to solve their problems and save themselves.” Cinderella sets up a successful business designing trainers as an example.

Parents can utilise resources like this to support their teachings. In fact, the financial services sector has long been a leader in financial education initiatives. In 2023, members of UK Finance:

Provided financial education lessons to over 4.1 million children and young people in schools or community settings, teaching varied skills such as the basics of money management to understanding emerging threats such as online fraud
Engaged with over 145,000 educators and 25,000 schools
Provided financial education training to 742 teachers
Supported learning at home through 39,500 downloads of parental guidance materials
Reach 10.4 million individuals through targeted social media messaging
Source: Financial Education Report 2024

UK financial resources for kids

Some leading examples of educational initiatives parents and kids can gain support from include:

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