Financial literacy should be a family affair, helping to empower future generations. We talk to Seonadh Johnson, Relationship Manager at Key Capital Private Wealth Management, about a simple way to encourage conversations about money at home and how you can use Three Pots to teach life-long lessons.
As the new year kicks off, many of us will be giving our finances a health check and committing to positive financial practices for the year ahead. It’s a great time of year to do this – setting out positive intentions that will, ultimately, reward your financial wellbeing as the year goes on. This year, as opposed to reserving this for the adults in the household, why not involve the children and young people too?
Research has shown that children who grow up with a good financial education are less likely get stuck in debt cycles; are better prepared for financial shocks or upsets in their future; and have the surplus to donate to charity and support their communities. Despite this, surveys show that young adults have amongst the lowest levels of financial literacy which is reflected in their inability to choose the right financial products or lack of interest in financial planning, according to the Organization for Economic Co-operation and Development (OECD). In the OECD Principles and Good Practices for Financial Education and Awareness, it is recommended that financial education start as early as possible.
Seonadh Johnson is Relationship Manager at Key Capital Private Wealth Management and she works with families, business leaders and entrepreneurs to help them realise their wealth management goals. She explains that starting a child’s financial education at home enables children to develop a healthy, positive relationship with money, meaning they are more likely to become a good steward of their resources in the future.
Many parents and care-givers are reluctant to talk about money with children, but “normalising talking about money enables children to explore more complex financial concepts as they get older,” she explains.
Improving a child’s level of financial literacy doesn’t have to be overly complicated, she says, sharing a simple practice called ‘The Three Pots’ that she has introduced to her own nephews to teach them life-long lessons.
What is it?
The Three Pots is the practice of assigning money to three distinct pots, which represent three actions around money: Spend, Save and Share. Seonadh encapsulates the lessons it can teach in one line: “It’s not all for me and it’s not all for now”.
How do you do it?
Each child in the household gets their own Three Pots. Using an agreed-on percentage break-down, they start to divide any money they receive into their Three Pots. Seonadh recommends a percentage break-down such as Spend 50%, Save 30% and Share 20%.
Why is it important?
As Seonadh explains the concept, it becomes obvious that simply having the Three Pots in your home will start a healthy conversation about each one.
For example, as you see a child assign money to the Save pot, it becomes easy to ask them what they might be saving for and to explore why that purchase is important to them and how long it will take them to save. It might be a toy or piece of technology that requires a long lead-in time or perhaps it’s an investment in a designer handbag – whatever they are saving for can be discussed. As well as teaching the concept of delayed gratification, the Save pot can also be used to incorporate a child’s maths lessons from school into real life.
Including a Spend pot is important to encourage a healthy relationship with spending. It might sound obvious, but many of us are conditioned to feel guilty about spending, despite it being a natural and daily need in our lives. “We all have bills that need to be paid and getting a child used to understanding needs versus wants when it comes to spending money is important,” explains Seonadh. This lesson alone really resonated with me and I left our interview thinking it could ease a lot of stress and guilt adults often have about necessary spending.
Using the Share pot allows children to explore a responsible and healthy way of ‘sharing’ resources. Who are they choosing to share it with? When do they share it? How does it make them feel to share? It also allows the concept of philanthropy and mindfully donating to be explored as a family. What causes are your children interested in? What do they care about? How are you role modelling this practice to them – financially or through time or expertise you might be sharing with your community or a cause?
How do you do it?
Using glass jars, especially ones with lids, can be visually very effective as the Three Pots. For younger children (or young people for whom glass is not safe), recycled yoghurt pots can work well or any ‘jar-like’ container. Keep all three the same size – Spend, Save & Share. You can get your children involved in decorating their pots as you introduce the idea and then help them find somewhere safe and visible to put them, all clearly labelled.
For older children, apps such as Revolut offer effective ways of dividing money into Three Pots. “As long as parents are monitoring their activity, these apps can give children a level of autonomy over their spending and their money, which is important for them to experience in a supported way as they get older,” says Seonadh.
What are you waiting for?
In a world where financial literacy is a core life skill for participating in modern society, education needs to start early. Children will eventually need to take charge of their own financial future and this will involve having many conversations about money – with partners, family, banks and others. Therefore, it seems essential to start exploring conversations about money and wealth at home and teaching lessons that will stand to them in the future. What are you waiting for?