Rising debt levels, struggles with getting on the housing ladder and inflation rising faster than pay reinforces the need for better financial education to help individuals better manage their money.

The education push ultimately needs to start from a young age, so as to engrain a savings habit in individuals and prepare them for the financial pressures of later life.

Financial education isn’t a ticket to making you rich. Instead, it is arming you with the skills to a) prepare for tougher times or financial hurdles through saving money; and b) understand how to avoid getting into unnecessary debt, or minimising the severity, by having greater control over your spending.

Simon Gibson, chief investment officer at wealth manager Mattioli Woods, believes he has one answer. He uses a savings model with his own children and with clients which dictates how pocket money is spent. A few simple rules can teach children the value of money plus help to develop healthy savings habits.

He says parents or grandparents should stipulate that pocket money is put into four buckets – the percentages are the same whether the child gets £3 a week or £15 a week.

10% charity – this might be making a donation to animal protection or an earthquake relief fund.

30% something special – such as wanting new roller skates outside of a birthday or Christmas.

30% long-term savings – don’t specify what the money is for; just communicate that it is for important items when they are older. In reality this might help children with money towards a house deposit when they are an adult, for example.

30% ‘anything you want’ spending – this is money to be used for life’s casual pleasures such as a new toy or a magazine. Even then, the child may have to save for a couple of weeks to have enough to pay for the item.

Giving money to charity teaches children the value of helping others who have less than them. The ‘something special’ bracket could help to educate children about the need to save first, buy later – rather than borrow money to buy now. Hopefully this will make them not want to rely on credit cards or loans when they become an adult.

The long-term savings segment will give them a pot of money for important life events, and also get them used to putting aside cash on a regular basis – which essentially means they have developed a pensions saving habit from an early age.

And the last bit refers to money they can spend as and when they want. A child may spend like crazy at the start, but they could soon appreciate what their money can buy and whether the product or service is worth it. That in turn could lead to more considered purchases in the future.

This plan looks so simple yet with the potential to be highly effective. I’m certainly going to give it a go with my own children. (DC)

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