‘The trouble with children these days is they don’t know the value of money’ - I am sure you’ve heard that before. You may have even said it (in which case congratulations on becoming your parents). Now is your chance to do something about it.
If you’ve found yourself adopting the role of your child’s teacher over the last couple of weeks due to school closures and working from home, why not take the opportunity to add some basic financial education to the ‘school’ day?
Taking some time to actually explain where money comes from, how it works and why it matters can equip your children - whether they’re toddlers or teenagers - with a good grasp of finance. And that is arguably one of the most useful lessons to carry them through life…
1. Start them young
By the age of seven most children have grasped how to recognise the value of money and how to count it. They may also have come to understand that money buys things and how it is earned.
Today, a vast number of children will own a mobile phone at age eight, or even younger, be able to open a bank account and even have a debit card at age 11. Even if you’re not teaching your children about finances, corporations are - and they may be doing so in a less responsible way.
Waiting until a child reaches their teens to teach them about finance is simply too late.
2. Teach them the basics of saving and spending
One of the first things we teach our children is the benefit of saving - after all, how many nurseries and children’s bedrooms in the UK feature a piggy-bank of some description? Even if it’s a subconscious act, saving is regularly promoted to our young.
But it’s important to teach your children that being smart with money is not all about saving – money is as much about spending as it is saving.
Relentless saving can be as dangerous as uncontrollable spending and it is important that you explain to your child the importance of maintaining a healthy balance between the two.
3. The budget
Explain to your child what budgeting is. All financial planning - whether a corporate project or a domestic grocery shop should centre around a budget.
Teaching your child about the importance of budgeting is essential in helping them become financially capable adults. Especially in today’s world of instant information and quick fixes - if children can learn to accept delayed gratification by being able to adhere to a budget and save towards a goal, the rewards will be so much sweeter.
4. Set the example
Never underestimate the impact your own money habits – good or bad – will have on your children.
Describe what debt is, and the downward spiral that it can be for so many people.
Older children will benefit from knowledge about student loans, and the interest rates associated with those financial products.
Discuss your pension arrangements (it may prove beneficial for you too!) and how important it is for young people to save for their future as early as they can. You could even open an account and really engage your youngster with the concept of investing for their future by making them an active saver.
If you teach them nothing else, make sure they have a firm understanding of the two C’s: compound interest and credit cards. If they understand the magical power of the former and the dangers of the latter, you’re half way there.
5. Empower your little people
How do you ensure your toddler grows up to be a financially savvy adult? A weekly allowance is a good place to start as it teaches children the value of money.
It’s important to help your son or daughter use their allowance wisely – they should understand the need to set aside some money to save (for a goal), spend (treats) and share (charity).
Involve your child in some financial decisions. If you’re busy doing an online grocery shop and deciding between products; explain why it makes sense to buy the better priced item if the quality is similar. It’s very likely that we’re all going to be working and learning from home for a considerable time yet. So, take this opportunity to teach your children about money. You don’t need any textbooks – the world (and your kitchen and lounge) is the best classroom.
Important information: The value of investments can go down as well as up, so you may not get back the amount you originally invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment.. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.