As an ambitious professional, you want what is best for your money. And as a parent and spouse, you want what is best for your children and family. That does not mean that you want them to have exquisite clothes or the latest iPhone. But it does mean that you want security for them. And you want to be able to pass on as much of your wealth as possible so they can build on it and then pass it on to their own children.
But are they learning everything they need to know about money matters at school?
“Without some financial awareness, it is difficult to do well in life,” says Investment Quorum CEO Petronella West. “Whether we like it or not, money is key to so much. Where we live, what education we can get – money is behind every single decision we make in life.”
Curiously, however, many people involve neither their spouse nor their children in key financial decisions, and financial literacy is not accorded the same importance as other skills at school. Many parents fail to take advantage of opportunities to discuss money and financial matters with their children. Some even say they are extremely reluctant to do so.
Children, however, are often more interested in learning about such things than one might think. Even if you say nothing to them, they will find out about money one way or another. If you want to shape the way in which their relationship with money evolves over time, then it is never too early to give them the gift of financial literacy.
“I’ve been working closely with Future Skills Training, which develops and delivers programmes to help disaffected young people”, says Petronella West. “It’s a Battersea-based charity set up to support vulnerable children with limited opportunities within the mainstream education system. One of the things that has become absolutely clear to me from my work with them is that the earlier you start with a child’s financial education, the better”.
Once your children are old enough to know that pennies should not be stuck up their noses, they are old enough to be introduced to the notion of cash. Talking to them about how money is used and then providing them with demonstrations in the form of cash purchases can actually be quite effective.
And the fact that we are living in an increasingly cash-free world should not constitute an obstacle to teaching them. Many parents show their children debit card receipts on which the amount paid is shown. Over time, they start to understand the key concepts underpinning our use of money.
Early interactions with money will doubtless involve spending it. Your children will see you using it to make purchases. So it is important to teach them that it is not simply for spending – money should also be saved on a regular basis.
Getting into good saving habits is not just essential for managing one’s finances. “Saving teaches children about discipline and delayed gratification”, says Petronella. “It teaches them about planning and setting goals for themselves. It teaches them how to create security and become independent”.
Even something as simple as a savings jar in which coins can be deposited will help your children get into the habit of saving money.
Needless to say, with very young children, it is better to help them save for short-term goals. That way, they learn the value of delayed gratification and then develop more effective wealth management strategies in later life.
Parents can also encourage their children to save by matching the amount that they put aside, pound for pound. If they have a bank account, then they can take advantage of the savings incentives provided by banks like Monzo or Revolut.
Encourage them to make smart spending decisions
For children to learn how to make decisions about using money, they need some of their own – a monthly allowance, for example. “We have a different relationship with money that we earn than with money that we are simply given”, says Petronella.
“I am keen for my children to learn that money is earned”, she adds.
By introducing an allowance system, children learn to live within a budget. In many households, teenagers are constantly heard clamouring for money, before spending it without giving any thought to the effort that went into earning it. But paying them an allowance and telling them that they have sole responsibility for managing it will get them into the habit of making sensible decisions.
Most banking apps nowadays feature money management functionalities. Children can track how much they have coming in, how much they are spending and how much they are saving. Learning how to budget during their teenage years will stand them in good stead for when they are ejected from the family nest and have to fend for themselves at university.
Teenagers should also learn that spending is not necessarily about buying things that they want. Life is also about spending money on things that you need when you are an adult. Having money gives them the means to decide to pay people to do things for them. In short, personal finance is about decisions.
The value of giving
Teaching your children to manage money is also about sharing your values with them. If you attach importance to giving to others, you can raise your children’s awareness of that importance, encouraging them to get into the habit of giving from an early age.
Again, numerous banking apps have useful features designed to turn your surly teenagers into bighearted philanthropists. Revolut, for example, allows you to round up your weekly or monthly spending and turn it into a regular donation to the World Wildlife Fund, the Royal British Legion… or the British Red Cross’s Ukraine emergency relief effort.
Teach your children that money can grow
The first generation makes it, the second generation spends it and the third generation blows it. And what exactly is “it”? “It” refers to wealth and everything that it encompasses – money, property, furniture, works of art and other material possessions.
Only around a third of businesses are handed down to the next generation. And barely 10% of family businesses make it to the grandchildren’s generation. For various reasons (including inheritance tax and a frivolous attitude to wealth), family money appears to move away from the family that created it. So if you really want to teach your children how to build wealth, teach them about investing.
“Whenever we start building a relationship with a new client at Investment Quorum, we try to engage with the whole family. Not just the husband, wife or partner… but the children as well. We want children to see themselves not as beneficiaries of their parents’ riches… but more as custodians of that wealth”, says Petronella.
Set a good example
Embody the financial behaviours that you would like your children to adopt. If you want your children to get into good spending and saving habits, it is important for them to see you making sensible spending and saving decisions.
Practise what you preach. And do so with consistency. Teaching your children to be financially literate can take time. But if you communicate consistently and continuously, they will pick up good habits that will serve them well in the long term. You could even consider bringing them along with you next time you check in with us at Investment Quorum.
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