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Our children learn many subjects at school. English, Science and Maths feature prominently in the curriculum – presumably because these will form pupils’ abilities to function independently as adults in society. However, financial education is still markedly poor across the UK. Whilst more attention is now given to topics such as budgeting in school PSHE classes (Personal, social, health and economic education), the values which underpin sound money management and investing are often absent.
Our financial planning team at Cedar House believes that parents and grandparents form a key part of a child’s financial education and wisdom. Below, we offer some insights and tips about how to achieve this during your son or daughter’s foundational years. If you’d like to find out more or discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
020 8366 4400 or firstname.lastname@example.org
For a long time in the UK, it has been culturally unacceptable for parents to discuss household finances with their children. Many fear that, upon hearing the “huge sums” that their dad and mum earn each month, children will push harder for toys, sweets and other luxuries. Yet this can be avoided if both parents clearly explain to children what that money needs to be spent on. If you earn £2,000 per month, for instance, but then explain to your son/daughter – item by item – where this money needs to be allocated, it is often remarkable how quickly young children grasp the idea of needing a budget. Indeed, rather than leading them to ask for more, the end result of an open discussion with your children could be that they are more cautious about what they ask for. You could even agree a certain monthly amount that they can ask to be saved up and spent on things that they want (e.g. £30 across your children).
Children imitate the people they look up to. Your son or daughter will copy your mannerisms, the body language and tone you use. They want to laugh at things you find funny, follow the people you follow and value the things you value. How you spend money, therefore, teaches your kids about money automatically – without even saying a word. Modelling the good management of money is a key part of a child’s education. What do they see when they look at your money habits? Do they see someone who lives from paycheque to paycheque due to poor spending choices? Are they confronted with someone who always squirrels away and never seems to know how to enjoy spending money in a healthy way? Can they see, clearly, how saving and investing over 10+ years can lead to a better quality of life later?
Suppose your child leaves home for university at age 18, suddenly in complete control of their own daily routine and spending patterns. Will they be able to handle it? Many parents attest to how their son/daughter blew their overdraft within their first freshers week. The sight of £1,000s suddenly appearing in their bank account was clearly too much for them! If your child is going to be responsible for this kind of money in adulthood, they need to be given gradual responsibility with money as they grow throughout adolescence. There are many ways to do this which may or may not work with your child’s personality. Encouraging them to get a part-time/weekend job can be a wise choice for some. Others may assign a weekly/monthly allowance, of which maybe 10-30% needs to be saved.
One of the most crucial aspects of anyone’s financial education is learning to invest prudently – and early. As such, consider opening an investment account (e.g. a Junior ISA) for your child as soon as possible. Contribute a bit each month, and keep clear records showing how this steady saving pattern – and compound interest – eventually led to massive growth by the time the funds are needed by your child. When they see the journey the money took to get where it is, there is a strong chance that they will appreciate the power of investing and also put this into practice. When they eventually start employment and receive a paycheque, hopefully they will not simply resort to spending everything – instead setting some aside for a rainy day, and even retirement.
Whatever you do, it is important to recognise that your child will make poor choices with money. Just look at yourself. All of us can point to bad past decisions with spending and investing. The key thing here is that we learn from our mistakes, and move towards our goals. Expect your son or daughter to come to you in the future, asking for financial help. Consider having a plan ready so that you can set them back in the right direction, rather than setting up an expectation that you will simply “bail them out” if they repeat similar mistakes again later on.
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or email@example.com