Let kids be kids, but prepare them for the financial jungle

Teaching children the fundamentals of investing now seems less like a drab imposition than an important form of empowerment. Getty

I have to admit it – when I saw a recent news headline in this newspaper that read Six strategies to get children excited about investing, I felt my heart sink a little. Many parents ruefully acknowledge that kids grow up quick but in these hyper-connected times it seems that the window for childlike innocence shrinks with each digital leap forward.

A vision of youngsters glued to their devices as they play with stocks and bonds, build an investment portfolio or wrestle with the tedium of concepts like inflation or dividends struck me as profoundly dispiriting. Is there nothing our market economy cannot reach?

Nevertheless, it got me thinking about my own financial education, which was as far removed from playing the stock market as one can imagine. “Put 10 per cent of your money in a savings account” was about the height of it. So, when I contrast this with the financial nous required for getting by in an increasingly complex and uncertain world, the idea of teaching kids the fundamentals of investing suddenly seemed less like a drab imposition than an important form of empowerment.

This is not to disparage the valuable, time-worn financial habits that were instilled in me as I grew up. Saving, setting something aside for a rainy day, understanding the difference between using credit and racking up debt – all of this was and is sage advice. But the world has moved on, and there is now a chasm between the wisdom that held true in the 1980s and the kind of knowledge young people will need for the 21st century.

We live in times where even seemingly safe choices look less certain than before. High inflation and a cost-of-living crisis across several countries have eroded the value of many people’s cash savings, particularly those held in accounts whose modest rate of return cannot keep pace with rising prices. Keeping a few thousand aside may be a sensible short-term move, but the damage inflation wreaks on the value of those sums over the years means today’s children must be taught a shrewder approach. Even property, once the great repository for personal wealth, seems less secure – something that many insurance companies faced with increasing climate-damage pay-outs could attest to.

I came to investing late in life. As someone averse to taking financial risks, the stock market seemed like the last place to be. However, a two-day introductory course in passive investing in Dubai a few years ago changed all of that. Once the mystery had been stripped from identifying reliable index funds and long-term government bonds to anchor a modest but growing portfolio, I was left wondering – why wasn’t I taught this before?

Admittedly, when I was growing up, the technology, companies and markets required for such an approach simply weren’t there. Now, however, stocks, bonds and cryptocurrency can be bought and sold on your phone. Some see this as the democratisation of trading which cuts out the expensive middleman; more sceptical observers describe it as gamification, which can have serious financial implications – this is real money being traded, not tokens in a game. The fact is this: investing is as accessible as never before and, in the same way that tech-savvy children are taught by schools and parents to use the internet effectively but safely, the same should apply to online investing.

As in so many other areas of life, a child’s background plays an important part in their exposure to sound financial ideas. Research from the OECD, which defines financial literacy as “a core life skill for participating in modern society”, has found that “families with high socio-economic status are providing students better opportunities to acquire financial literacy skills than socio-economically disadvantaged families”. If education is rightly regarded as a pathway for working-class kids to get on and succeed in life, then providing them with the right knowledge for 21st-century finances should be a no-brainer.

There is a right way and wrong way of doing this. Emphasising the returns and rewards of investing over the real dangers that exist in playing the market should be paramount. A solid grasp of the ground rules is essential: no get-rich-quick scheme is worth the time and money; don’t forget about taxes; read and understand the small print; and – most importantly – if something is too good to be true, it probably isn’t.

There’s more to life than money – but knowing how to wisely invest what you have can lead to independence, options, mobility and security. It can also go a long way towards making your life and the lives of your loved ones better. Money – having it, keeping it, growing it – is an inescapable reality of life for almost everyone. Although I’m still not persuaded that children should be “excited” about investing, leaving them in the dark doesn’t do them any favours either.