In today’s era of consumerism on a grand scale, it can be hard to maintain a clear and constant perspective about the value of money. Many of us muddle along, surviving, making mistakes and getting by. However this is no example to give to the next generation who are likely to pick up on our behaviours and habits. Instead we need to carefully teach our children about how to act responsibly with money and to give them the best chance of building positive financial habits for life.
We’ve set out a few areas that you might like to talk to them about as they begin their lifelong relationship with money.
1. Establish a savings routine
This can start as soon as children start to receive pocket money. Encouraging them not to spend it all as they receive it and instead to save for a bigger treat to be bought every few weeks or months can set in place the benefits of delayed but ultimately greater rewards. We all know the benefits as we’ve got older of saving for holidays and cars instead of borrowing and paying back far more than the actual cost.
2. Look after the pennies and the pounds will look after themselves
Another old saying that many of our parents used but it's also one well worth remembering and passing on to our children. This tip is all about small amounts eventually making a big difference, teaching children the value of not getting complacent and wasting what seem like insignificant amounts of money to them.
3. Understand debt
Borrowing money is a part of life and often makes good financial sense. Getting a mortgage to buy a home or even a loan for a car are often necessary. However borrowing money simply to support a lifestyle you cannot afford is a recipe for disaster.
Credit cards can feel cool to children! That is until they get their bill and suddenly realise the rates of interest being charged… Children should be taught about the dangers of credit cards in particular and loans in general, and that they are only suitable as part of a structured financial plan.
4. Share your own war stories
Unfortunately we’ve all made financial mistakes over the years. Maybe too much property in the boom, maybe we didn’t get proper independent financial advice early enough in our lives. Tell your children about lessons you’ve learned and how they can learn from them, and avoid making the same mistakes as you.
5. Don’t be afraid to haggle
Your children need to understand that they have real buying power in relation to a lot of the products and services that they purchase. They offer the potential of being very long-term customers, the types that brands really want to attract. So whether they are opening a bank account, booking a hotel, getting car insurance, buying a car, some electronics or even just clothes, they should get into the habit of making sure they get the best price by a bit of good old-fashioned haggling.
6. Plan your financial future
This is probably the most important lesson of them all… Financial planning shouldn’t start when people hit their forties and start worrying about retirement. Financial planning should start at a very young age; when children are thinking about all the things they want, but can’t afford! Choices have to be made, careful decisions need to be taken and a plan needs to be put in place to manage their limited resources to achieve the maximum effect and/or enjoyment.
7. Fund your pension early
Every 10 years earlier that you start a pension, your fund approximately doubles. So children need to be taught that pensions are not for old people! They are for savvy young people who have planned their financial futures and who want to make their financial objectives throughout life easier to achieve.
8. Get cover while it’s cheap and accessible
Life assurance, income protection and other such products are much cheaper and easier to get (younger people are healthier, underwriters take a more benign approach) so young people should get cover in place early. They should look potentially at convertible policies that they can maintain cover on, into the future. These could be very valuable, particularly if they are unfortunate to suffer from ill health as they get older.