Financial habits form early, and they form at home. The Money and Pensions Service has found that parental influence and early attitudes explain almost 90 per cent of the difference in children’s financial capability between the ages of seven and 11.

For Rupert Lee-Browne, chairman of children’s pocket money and payment card provider nimbl, that finding is where the policy debate should begin, not where it should end.

“Parental influence is a huge factor when it comes to learning good financial habits, as it is in almost every aspect of a child’s life,” he says. “The issue is, however, that patterns can become entrenched across generations. Parents themselves might never have been given a solid foundation in financial literacy, so how can they then impart financial literacy to their children?”

He points to a report in The Times from a few years back indicating that as many as two in five Brits have poor financial literacy. “Faced with this, it’d be irresponsible to condemn the children of these parents to poor financial literacy and persist with the generational inequality which results from this. So, while parenting is undoubtedly for parents, schools and the wider policy environment have a huge role to play in closing the financial literacy gap and in giving all children a grounding in sound finances, whatever their background might be.”

“As the old saying goes, ‘it takes a village to raise a child’, and it’s incumbent upon all of us, and benefits all of us, to ensure the next generation is financially literate.”

Lessons from America

The village is being assembled rather differently across the Atlantic, where the US is legislating for children’s investment accounts and the Treasury Secretary has predicted a financial literacy boom. Lee-Browne cites research from the World Economic Forum suggesting the US has an even greater financial literacy gap than the UK, with as many as half of Americans lacking basic financial literacy.

“For a country aiming to retain its position as the world’s preeminent economic power and holder of the global reserve currency, this level of financial illiteracy is unsustainable over the long-term,” he says. “It’s encouraging, therefore, to see the US government being proactive on this and developing policies that will help close the financial literacy gap. The instinct of designing policies that support children and families with financial literacy is also the right one, as good habits need to start young.”

The price tag gives him pause: he puts the cost of the pilot project at around $3.6 billion per year, though he notes that private sector partners are supporting the funding, a sign of how seriously the long-term costs of financial illiteracy are now being taken. “Upfront costs of such policies need to be weighed against savings and greater levels of economic growth down the line,” he argues. “Whether the UK would want to follow this exact policy is debatable, but what is clear is that government and the financial services sector have a role to play in boosting financial literacy in the UK, and this should be seen as more investment than expense.”

Where the UK is lagging

Financial education has been on the UK’s secondary curriculum since 2014, yet outcomes have barely moved. Lee-Browne is unsurprised. “Building long-term financial habits, and undoing ingrained bad habits, is not something that can be achieved overnight,” he says, pointing to a parliamentary report that highlighted challenges ranging from a lack of teacher training on financial literacy to the subject being wrapped into the broader mathematics curriculum as an afterthought. “So, there’s further work to be done if we’re to build the
financially literate Britain of the future that we hope for.”

That entanglement with maths is, for him, part of the problem. “Effective financial literacy education has to be about de-abstracting cash and spending,” he says. “While numeracy is key to effective financial literacy, mathematics is often about abstract numbers and formulas. Maths is fascinating and powerful, but I have no personal stake in whether a formula finishes on an odd number rather than an even one.”

“Cash is different, however, and if we treated finance in the same way we treat abstract numbers, we’d soon find ourselves in trouble. So, education has to make spending and saving real and, as with any practical education, oftentimes the best way to do this is by doing it, while being guided by adults and guardians. This is where we believe payment cards come in. Empowering kids, with adult supervision, to make their own spending and saving decisions is a crucial means of making money less abstract, and tying financial decisions to financial consequences.”

The cost-of-living squeeze has made the home dimension harder to ignore. “There are many families across the UK currently struggling with cost-of-living pressures, driven by energy price inflation and a weak economy. This is forcing families to look again at spending decisions and budgeting,” he says. “While this isn’t a problem that any child should have to spend time thinking about, it seems inevitable that some children will be watching their parents and learning from the experience. So, again, the family financial habits children happen to be born into can have a huge influence on long-term financial literacy.”

A role for fintech, and one change for this parliament

Where do commercial products fit into what is fundamentally an education problem? “Fintechs have a real role to play when it comes to supporting the drive for greater financial literacy. Tech, especially tech enabled by AI which can learn from and respond to people’s habits, has huge potential to improve financial literacy and empower people with the knowledge they need to make better financial decisions,” he says. “This isn’t purely altruistic either. A more financially literate nation is a more financially stable nation, which is good for
the whole economy, fintechs included.”

Asked for the one change he would make to UK policy on childhood financial literacy this parliament, he reaches not for an American-style spending commitment but for a regulatory nudge. “While bold measures such as that taken in the US have their place, they also come with significant risk and expense. There are simpler tweaks we could make with regulation, such as, for example, creating a responsibility for finance businesses regulated by the FCA to support financial literacy and demonstrate how they’re supporting the drive to improve it.”

“This would have to be carefully considered, and the positive impact of such a policy balanced against creating further regulatory burden. It’s in all of our interests to improve financial literacy, however, so I suspect this is something finance businesses might be happy to embrace.”

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