When raising children, there are plenty of skills that need to be passed on but one that often gets overlooked is money management. Despite it being crucial for security throughout life, just 38% of schoolchildren learn about finances in school.
You may view money management as something that children will pick up as they grow up. However, research conducted for Talk Money, Talk Pensions Week highlighted that many adults have gaps in their knowledge when it comes to their finances.
- Nine million adults often use their credit card, overdraft or borrow money to buy food or pay bills because they have run out of money
- 5 million adults have less than £100 in savings and investments, leaving them vulnerable to financial shocks
- 22 million working-age adults do not feel that they understand enough about saving for retirement
Failing to get to grips with finances in adulthood could leave children and grandchildren financially struggling. Providing guidance and opportunities to handle money as they grow up can help set children on the right path, whether they are still in primary school or preparing to strike out on their own. So, what can you do?
1. Get them used to handling money
Pocket money has long been used to get children used to handling finances and grasping the concept of money. It is still an important way to pass on money lessons. Whether they get a set allowance or earn money by completing chores, having a bit of money in their pocket to spend as they wish can really help youngsters learn the value of money.
2. Do not forget about digital banking
Whilst handing over money is still common, it is becoming part of our day-to-day lives less and less. Using chip and pin, contactless and even phones to pay can make it more difficult to understand how money is coming and going. Introducing digital banking is becoming crucial. As we move towards a cashless society, being able to manage money that does not have a physical presence is essential.
3. Set up a savings account
Habits that are formed as children can stick with them through their lifetime. Setting up a savings account can get them into the habit of putting something away for a rainy day long before it will need to act as a safety net. You may already be saving into a long-term account for them to access when they reach adulthood. If this is the case, showing them how it is growing and speaking about what it could be used for can help them make sensible decisions when they are older. It is also a good idea to set up a short-term savings account to get them used to the idea of saving for something they want and can dip into when they spot something.
4. Discuss where investments may be appropriate
Whilst on the subject of savings, you may want to talk about investing too. Cash savings are an important part of a financial plan. However, when saving for the long term, investing can provide a better option. However, people that have not invested before, may be worried about the risk of losing their money and unsure when it is a suitable solution. Discussing where investments can be used as part of a financial plan can help them grow their wealth over the long term. It is also an opportunity to discuss how pensions are invested over a working career.
5. Go through their first payslip with them
Whenever we get receive a payslip, we tend to focus on one number; the take-home pay, but the other information on a payslip is incredibly important too. Once they have gotten their first job, explaining to your child where their money is going can help budget and plan for the future. From National Insurance contributions to pension deductions, it is a chance to talk about a wide range of areas that will affect their security in the future too.
6. Explain the basics of debt and interest
A lack of knowledge about debt can be bad in two ways. It can mean people spend on credit too easily without a plan to pay it back. Alternatively, it may mean it is viewed as ‘bad’ and something that should be avoided. The truth is when used carefully taking out debt is an important part of financial planning. Most of us would have no way of purchasing a home without a mortgage, for instance. As children become teenagers, it is important that they begin to understand when debt can be useful and what the pitfalls are. It is a step that can help them manage finances long into the future.
7. Highlight where advice can be valuable
It can be difficult to know when to seek advice and how it can be useful. Whilst financial advice can be valuable on an ongoing basis, this is not always feasible. If this is the case, it can be useful at certain points throughout your life, helping create a plan for the future. If your children are not yet in a position where taking regular financial advice is in their interests, highlight when it could be in the future and explain when to access it. This could be when planning a marriage or starting a family, for example.
Providing for your family is an important part of your financial plan. You may want to set up a savings account for children or leave an inheritance behind. Taking these steps can create a secure future for them and act as an opportunity to pass on your knowledge and tips too. If you would like support in making your family part of your financial plan, please get in touch.
Please note: The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.