If you’re anything like me, you’ll have several members of the family to buy presents for this Christmas. Increasingly, youngsters ask for money to put towards items they want, whether that’s a game, mobile phone or a first car.
If you have children who have asked for cash, or are likely to receive it from family members, it might be an ideal opportunity to teach them about being savvy with money. Discover 10 lessons that you could teach your children or grandchildren using the cash they receive as presents, or existing savings.
1. Teach them responsibility
Allowing your child to make decisions about the cash they receive will help build financial responsibility and boost their sense of pride. While you can encourage and advise them by talking to them about their options, give them the freedom to say how they use the money. This will help develop their confidence around finance.
2. Budgeting is essential
Chat to them about budgeting with their pocket money. You might want to encourage them, for example, to commit to buying something regularly out of their pocket money, such as a magazine. They will then get into the habit of using what’s left for other things they may want. This teaches your child the concept of budgeting for a commitment and saving for the pleasures in life.
3. Help them understand the value of saving
Encourage them to save their money, perhaps by encouraging them to put it towards a more expensive item that they want. Make sure you don’t buy it for them, as the aim of the exercise is to develop the habit of saving. This could ensure they build an emergency fund when they’re older or avoid getting into debt just to have what they want immediately.
4. Teach them how debt works
Teach your child about “good” and “bad” debt. You could do this by explaining the difference between a mortgage to buy a home that could increase their net worth, and debt created by overspending. The latter is expensive and probably won’t increase their net worth.
One way of doing this could be to charge interest on any money your child borrows from you, so that they understand the cost of borrowing and having debt.
5. To spend, you need to earn
Helping children to understand that money is earned is fundamental. It not only teaches your children a work ethic, but also an appreciation of the value of money. You can do this by encouraging them to do jobs around the home for their pocket money or taking a Saturday or weekend job if they’re older.
The app Gimi offers a pocket money and chores manager, as well as education around earning, saving, and spending.
6. Virtual money is still money
An important lesson to teach your children is that payment apps and online accounts still require money in the first place. One way to help them understand this could be to let your children buy things when they have their own bank account, so they can see the balance reduce and then go up again as they deposit money into it later.
7. Compound returns can work for or against you
Albert Einstein is said to have called compound interest “the eighth wonder of the world”. While compounding can help boost your money’s growth, it can also result in debt mushrooming. Teaching your children to understand the principle of compounding is key, as it could help them make better decisions when they’re older.
8. Introduce older children to investing
As your children get older, consider teaching them about investing. One way of doing this is to open a Stocks and Shares Junior ISA (JISA), which allows you to invest £9,000 in the 2020/21 tax year. An additional advantage of a JISA is that your child cannot access the money until they reach age 18. This could be an effective lesson in long-term financial planning as well as how the stock market works.
9. How to handle a bank account
If your child or grandchild is older, encourage them to open a bank account so that they get used to running one. Teach them to regularly check the balance and what monies are coming into and leaving the account. This will develop a habit of knowing what their financial situation is at any given time, enabling them to make better and quicker decisions about money.
10. The importance of getting professional help
If you use a financial planner, explain to them why you use a professional to help you make better decisions with your money. You might also want to let your children see you talking to your planner so that they can fully understand the value of taking professional advice.
Many financial planners are committed to the financial education of youngsters and will be happy to explain key aspects of finance and investing to your children. This could help take the mystery out of investing.
Get in touch
If you would like to discuss your wealth, or ways you could help your children financially, please email me at firstname.lastname@example.org or call my office on 01793 766 123. Alternatively, call my mobile on 07525 177 046.
While I offer high standards of service and will work with you to ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.