Debt and personal finance often rank highly in lists of things we wish we were taught at school, but weren’t. This lack of knowledge, in many cases, has lead to terrible money management decisions and contributes greatly to personal debt in the UK. After all, finance is complicated. If we lack a basic financial education, how can we possibly make the right financial decisions?


To see the consequences of a lack of monetary education, we only need to look at the average personal debt in the UK. The Money Charity’s insolvency statistics show that the British household, on average, is £54,952 in debt. By 2021, this is expected to rise to £93,481. Graduates are leaving university with £44,000 worth of debt. Debt is a prominent part of everyday life.


Money management needs to begin at home with honest, open communication between parents and children. Break the taboo that often accompanies debt and money. The following are lessons that we, as adults, wish we had been taught in our formative years.


Children need to learn about credit reports and credit ratings

There are a lot of adults today who still don’t know the basics about credit reports and ratings. Essentially, they exist to give creditors an indication as to your current spending habits, your dependability when it comes to repaying debt and your ability to budget responsibly. Your credit report only covers a six-year period, any earlier financial activity won’t appear on your record. This is to give a current, up-to-date reflection of your current circumstances. It is important to note that without a good credit rating, you will have difficulty securing a mortgage or any other loan.


Sit down with your children and explain what a good credit score is, what a bad credit score might be and how to improve your credit rating. This can be done by being on the electoral register and having a credit card (especially if the remaining balance is paid off in full each month).  


Teach your kids the importance of sticking to a budget

Money management needs to start in the early years. This can be done in a fun way, by using the concept of pocket money. Children can get a set amount of money each week, and they can decide what to do with this sum. Make it clear that while you pay for necessities, luxuries come out of your child’s pocket money. This will help children to understand the value of money, it will help them get to grips with the practical application of maths and it will help them to avoid overspending.


Encourage a taste for saving

Saving is an important lesson for us all to learn and, given the chance, children take to the concept remarkably well. If you give your children pocket money, and they don’t spend it for a number of weeks, they will gain a sense of satisfaction from watching their money collection grow.


If they want to save up for a special toy, don’t indulge them instantly. Sit down with them and work out how long it will take for them to save up the required money with their current pocket money. For bigger purchases, such as a bike, some parents strike a deal with their children: if the child saves half, then the parents will match the sum.


As well as teaching children the value of saving, it will instil in them an appreciation of delayed gratification, patience and persistence. It has been shown that children with increased delayed gratification are more successful in adulthood. They will see that they don’t get everything they desire immediately, which means they are less likely to grow up feeling entitled to items and experiences they can’t reasonably afford.


Help them learn the difference between “want” and “need”

This can be a difficult lesson to learn for children. However, once children know the difference between things they want and things they need, your life as a parent will be so much easier. You buy them things they need, such as a bed, clothing and food. However, the latest smartphone or tablet is certainly not a necessity. This will help them resist impulse purchases as they grow.


Importantly, they need to learn about the consequences of debt

This might be a scary topic to broach, but pretending that debt doesn’t exist doesn’t do your child any favours. Children discover that actions have consequences. This is how they learn. But it is difficult for them to come to grips with unmanageable debt being a “bad thing” unless we teach them the repercussions of debt. This is when they should be taught how those with huge amounts of debt can go bankrupt, or they need to seek an alternative form of debt management resolution, such as an Individual Voluntary Arrangement (IVA) or a Debt Management Plan (DMP). None of these debt management solutions are to be taken lightly and all come at a cost.


Show them where to look for help if debt is insurmountable

Children and parents alike should know that there are avenues open to those in extreme debt. They can discuss options with debt management professionals, who utilise debt management software to help a struggling individual decide between various available options.


It should also be noted that there are organisations available for those who are suffering emotional issues due to their debts and money problems. This is especially important for children to remember: no matter how old they get, there are always people out there who are happy to answer your questions and help you as much as they can.


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