What should we be teaching our children to ensure they grow up to be better than us at managing money?
By Michelle Human: Legal Marketing Specialist
A while ago my seven year old asked me what my job was. After listening to my long description of financial planning he succinctly summed it up by explaining that the company I work for “makes sure that when people retire or die, their families still have money”.
What impressed me was the fact that he fully understood that there were financial implications to these issues. So what are the messages that we need to start sending to our children to make sure that the next generation have a sound understanding of financial planning?
Save for a rainy day
Never underestimate the value of pocket money. It teaches your child that things cost money and that when the money is finished there is no more until you earn it. This way an ordinary item is far more appreciated than if it was simply handed out; this is a valuable lesson in an era of instant gratification. Encourage your children to put aside a small amount of pocket money each week or month to save towards a specific goal. Perhaps you could even agree to match the amount once a certain amount has been saved.
And then save some more...
Older children should open their own bank account or even start investing a small amount each month in a conservative unit trust. Watching their money grow over time will soon motivate them to be investors for life. Teenagers will enjoy buying fictitious shares and setting up a competition in the family to see whose share portfolio performs the best.
Avoid unnecessary credit, and buy cash
Avoid lending money or advancing pocket money too easily, and if you do, be sure to charge a nominal “interest rate”. This will teach them that the item that they had to have immediately, has cost them more than it would have, had they saved up first. Perhaps such a simple lesson could have avoided the sub-prime lending crisis and spared the world a financial dilemma that is not easily solved.
Teach them to budget
How to budget is another important skill to learn and also teaches children how to prioritise. Why not give them a budget for the holidays and see how they do. Explain that this amount is to cover all their expenses while they are on holiday such as movies with friends or an ice cream. You could even include clothing and other items such as DVD’s or sports equipment for older children.
Talk about money
Make sure that your children feel comfortable around money. Discuss how different currencies work if you travel to a different country. When they ask, explain how a credit card works and the fact that it has to be paid at the end of the day. Explain that an ATM is a way to draw money out of your bank account, but more importantly explain how the money gets into your bank account in the first place. It is not just a pot of gold that is magically topped up. By making your children aware of these issues you are setting them up to make informed choices and be financially aware.
Prepare them for the future
When your child starts working set up an appointment for them with a financial adviser and let them start on a lifetime of financial planning.
Fleishman-Hillard | Digital. Integrated. Global.
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