The latest Young Person’s Money Index, compiled by the London Institute of Banking and Finance, recently revealed that 67% of young people worry about money.
Education can help children and teenagers worry less. So passing on a few financial basics to the young people in your life can go a long way to help ensure their financial wellbeing.
It’s never too soon to start teaching children about money
According to the bestseller Get a Financial Life, by Beth Kobliner, children as young as three can grasp concepts such as saving or spending. Meanwhile, research from the Money Advice Service found that lifelong spending habits can be set as early as seven years old.
So, if you haven’t already started teaching your children about money and finances, now could be the perfect time to start.
Help your children form good financial habits for life
These eight lessons from a great starting point to teach your child (or grandchild, if you’ve been drafted in to help) that could help them form good financial habits for life.
1. Teach them how to budget
Budgeting forms the foundation of sensible financial planning. Whatever age your child or grandchild, understanding the balance of savings versus spending is a vital part of learning to manage money effectively.
Breaking down expenditure into needs, wants, and savings is key at all ages and the 50/30/20 technique is a great way to teach this.
Consider increasing the allowance of a younger child and explain that the new amount must cover “needs” such as school clothes or lunch money, as well “wants”, while leaving enough to put some aside for the future.
For older children, who may be enjoying their first taste of social freedom or struggling to manage a student loan, the same principles apply. The earlier children develop a good savings habit the better.
If you want to use an app to help manage pocket money, monthly allowances and spending, then look at Go Henry; it’s absolutely brilliant for kids.
2. Demonstrate the value of saving
Encouraging your child to save money is a great way of instilling financial discipline. You could do this by encouraging them to save for an expensive item they want to buy.
Some banks and building societies let children open a savings account from age seven. Having their own savings account will help younger children begin to understand interest, deposits, and withdrawals.
To encourage your child to save, consider offering to match your child’s contributions. For example, while it’s important not to buy it for them, if your teenage child wanted to save to buy their first car, you could make an agreement that you will match their savings to help them purchase the car they want sooner.
3. Explain how interest on debt works
When it comes to borrowing, there’s no such thing as “free money”.
Loans and mortgages might seem complicated to a young child but understanding them is important as children get older.
Budgeting with – and understanding the implications of the cost of debt – whether it’s a student loan or their first credit card, could prevent you from having to step in and bail them out of expensive debt if they mishandle their finances.
Teaching your children how overdrafts and credit work can help prevent them from making expensive mistakes.
4. Share your own mistakes
Everyone has made mistakes with money. Whether you made an ill-advised purchase, failed to shop around for a deal, or borrowed money you shouldn’t have, share your cautionary tales with the children in your life.
Sharing your own mistakes can help children avoid making the same errors as you.
5. Introduce older children to investing
As your children get older, teach them about investing.
A Stocks and Shares Junior ISA (JISA) is an ideal starting point. In the 2022/23 tax year, you can invest £9,000 a year into a Junior ISA. Your child can access the money when they reach age 18, or roll it into a regular ISA and continue saving.
As well as building up money for your child’s future, a JISA can be a great way to demonstrate how stock markets works.
6. Show the benefits of compound growth
Benjamin Franklin was right when he said: “Money makes money. And the money that money makes, makes money”.
The earlier a child or grandchild starts saving, the more powerful the benefits of compound returns.
Show them how keeping the returns their money has earned while invested helps them make extra gains the following year, simply because their overall balance has increased.
Use a child’s pension or JISA to show this benefit in action.
Alternatively, encourage your adult children to start contributing to their pension early so they can benefit from decades of compound growth.
7. Introduce them to your financial planner
Introduce your children to your financial planner and explain to them how a professional helps you make better decisions with your money. Invite them to a meeting with your planner and let them sit in on the conversation so that they can understand the value of expert advice.
We are passionate about financial education for young people and will be happy to explain key aspects of finance and investing to your children, no matter how old or young they may be.
8. Keep it relatable and fun with Let’s Talk About Money
Introduce your teenagers to our education brand: Let’s Talk About Money (LTAM). Although much of the information we share is applicable for everyone, LTAM is primarily aimed at millennials (those born between 1981 and 1996) and Gen Z (born 1997 onwards).
We’ve also teamed up with blogger and entrepreneur Zanna Van Dijik to help us promote what we’re doing with LTAM. In addition to the free services we provide on Instagram, over the coming months, we are launching a series of paid webinars and courses offering more insight and guidance on all topics related to financial planning. More details to follow soon.
Get in touch
If you’re interested in finding out more about how we can help teach your kids important money lessons, get in touch. Email email@example.com or call 020 7467 2700.
This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.