November was the month of Talk Money Week, which encourages Britons to be more open about money with family, friends and financial professionals. The weeklong event aims to make talking about wealth less awkward, something that could encourage helpful conversations that may provide you with peace of mind and help you to make better decisions around your wealth.
One group of people the 2023 campaign is focusing on is children, as talking to younger family members could help them to become savvier with their wealth later on in life. With this in mind, read on to discover 10 important money lessons that you can teach your children or grandchildren so that they can make smarter financial decisions when they’re adults.
1. You can’t spend if you don’t earn
This is one of the most important lessons to teach children. One way you can do this is to pay them for the jobs they do around the home, which helps to develop a healthy work ethic. It also teaches them the value of money and could encourage them to go out and get a part time job when they’re old enough.
2. Budgeting is central to financial planning
You could teach your child to budget by encouraging them to commit to buy something regularly out of their pocket money, for example, a magazine. They can then use any money that’s left over to purchase other things they might want to buy.
This helps them understand the importance of ensuring they always have enough money to buy essentials or something they’ve committed to buying.
3. There is a difference between want and need
When you’re shopping, discuss with your children or grandchildren the difference between the things you need to buy and the ‘nice to haves’. Help them to understand that essentials always take priority, as this will teach them financial responsibility later on in life.
4. Compound interest and growth
Helping your child to understand compound growth and compound interest is vital. One reason for this is that it will help them to understand how compound interest can result in debt mushrooming in a relatively short space of time.
A good way to teach your children about compounding is to pay interest on their pocket money and then sit down with them regularly to calculate the growth.
5. Virtual money is still money
The UK is increasingly becoming a cashless society, which means it’s important to teach your children that online bank accounts still need money to be deposited into them. You could help them to understand this by setting up an online bank account that they can manage, as this will demonstrate to them that digital money still money that needs to be earned.
6. Difference between ‘good’ and ‘bad’ debt
Being “in debt” is not necessarily a bad thing, as long as it’s managed responsibly. For example, a mortgage is a debt, however having one could increase wealth if the value of the property rises.
Teaching children the difference between ‘good’ debt and ‘bad’ debt, the latter being an unmanaged credit card bill for example, could help them to make better decisions when they’re adults.
7. The importance of saving
Encouraging your child or grandchild to save helps to instil good financial behaviours. Learning to have the patience to save could mean they avoid unnecessary credit when they’re older, which could save them significant amounts in interest.
You might want to teach them to save by suggesting they buy something that’s expensive in relation to the money they have, but affordable if they save over the long term.
8. Encourage them to make financial decisions
Talking to your children about how you save and spend your money, or expose it to potential growth, could help them to understand how to make financial decisions as adults. You might also want to develop this further by giving them responsibility for deciding which is the best value for money option on certain products while shopping.
9. Help them to understand investing
Historically, investing has tended to outperform cash savings over the longer term. While investing should never be entered into lightly and should always be done with the help of a financial adviser, teaching your children to consider investments when they’re older could help them to boost their wealth as adults.
10. Getting professional help is wise
Allowing your children to see you talking to your financial adviser will help them to understand the value of working with a professional. Explaining how your adviser helps you to manage your wealth, maintain a level of financial risk that’s right for you and achieve your goals could help younger members of the family see that financial advice makes sense.
Get in touch
We hope you find these top financial lessons for children useful. If, on the other hand, you would like to talk to a financial adviser about exposing your money to greater growth potential or how to make better decisions with your wealth, please call us on 01527 577775 or speak to one of our advisers, as we’d be happy to help.
Friday 15 December 2023