A recent study conducted by UCL examined 3,745 families in the UK and revealed a notable disparity in financial knowledge among children based on their socioeconomic backgrounds.

The research sheds light on significant inequalities in the financial capabilities of young individuals, indicating that disadvantaged children are not acquiring essential financial skills.

The findings underscore the urgent need for increased emphasis on fostering financial literacy among children, starting from primary school. The study particularly highlights the importance of targeted financial education for children from disadvantaged social backgrounds. Efforts must be made to carefully consider the provision of financial education for this specific group.

“There has been much concern in the UK about a lack of social mobility and the propensity for educational and social disadvantage to perpetuate across generations,” the researchers explain. “This includes intergenerational cycles of money problems, poverty, and debt, which may be linked to socio-economic inequalities in the financial capabilities of young people.”

Financial education

The study reveals a noteworthy disparity in financial education provision among children from disadvantaged backgrounds, particularly in the later stages of primary school. Children from these backgrounds are less likely to report covering money-related topics during their school lessons.

These gaps in financial education emerge early in life and tend to persist throughout the teenage years. While some of the differences can be attributed to variations in cognitive and socio-emotional skills among children, it appears that socioeconomic disparities in financial capabilities are not solely a reflection of inequalities in these other areas.

The findings highlight the importance of engaging young individuals from disadvantaged backgrounds in conversations about money at an earlier stage in their lives. By addressing these disparities, efforts can be made to enhance the financial capabilities of children who face socioeconomic challenges.

Financial capabilities

In order to conduct their study, the researchers utilized a representative dataset extracted from the 2019 Children and Young People’s Financial Capability Survey, which captured the financial capabilities and behaviors of 7 to 17-year-olds in Britain. The authors supplemented this data with parental questionnaires administered through online and face-to-face methods.

The results indicate a significant disparity in financial knowledge between children from different socio-economic backgrounds. Children hailing from more affluent households exhibit stronger financial knowledge, largely attributed to their greater exposure to financial education prior to secondary school.

A contributing factor to this discrepancy, as identified by the experts, lies in the interactions children have with their parents. Children from disadvantaged backgrounds engage in fewer discussions about money with their parents and are less likely to receive guidance from their caregivers on the functioning of financial matters.

“However,” the authors explain, “while we find these parental interactions can account for part of the socio-economic gap in money confidence, money management, financial connections, and financial behaviors, these interactions are less important in boosting financial abilities.”

Significant barriers

Children from disadvantaged backgrounds face significant barriers when it comes to having a bank account, particularly at a young age. This lack of access to banking services may hinder their development of a strong connection with the financial world. To address this issue and enhance their financial mindset and skills, it is crucial to promote the use of financial services among socio-economically disadvantaged families and their children.

One potential solution is to introduce a specialized account for young people linked to the government’s Help to Save program, which offers higher interest rates and rewards for positive saving behaviors. Such initiatives could help foster a stronger financial connection among disadvantaged individuals and families.

It is important to acknowledge the limitations of this research, including the fact that only one parent participated in the survey. Additionally, the available measures, such as information on children’s educational attainment and socio-emotional skills, had certain limitations in terms of their quality and comprehensiveness.