Financial planning isn’t generally covered as part of the school curriculum and education. As a result, it’s usually the responsibility of parents to teach and guide children about the importance of money. So where do you start? Julian Broom, our Chief Investment Officer, shares some top tips.
Being confident about conversations and decisions regarding money, investments and financial planning is an important skill. And beginning the process of teaching and guiding young people about good financial decisions can’t begin early enough; a study from Cambridge University and the Money Advice Service found that children’s habits regarding money are usually formed by the age of 7. So, with this in mind, it’s clear that it’s never too early to start guiding children to develop good financial habits, which can then be used into adulthood.
Some of the best ways to begin include:
- Making savings a habit as soon as possible and providing rewards for saving
- Keeping children involved and interested by showing them how their money grows
- Discussing the difference between short-term, medium-term and long-term goals and how saving can help
- Explaining compound interest and how this can help accelerate the journey to reaching long-term goals
- Introducing the idea of risk and reward
So where do you start? There are some useful online tools which you can tap into. Practical Money Skills by VISA is a website that aims to provide some first steps into financial education with information, games and guides aimed at children. It can be a great starting point, and offers some good opportunities for children to play to reinforce their skills.
Of course, when looking online it’s also worth the usual caveats. Many young people will see various pieces of ‘advice’ presented through social media including YouTube and TikTok. It almost goes without saying that there are inherent risks with this approach, which we’ve explored. So, it’s wise to not just educate them about the importance of good financial planning, but also where to turn to for that advice.
But if you are looking to share practical advice from outside the family circle, which can be dipped in and out of over the years, there are some helpful books available for older children including Happy Ever After: Financial Freedom Isn’t A Fairy Tale. It might make a useful present, especially for older children taking some steps into independence and who may benefit from hearing sensible financial stories from people other than mum and dad!
It can also be valuable to tackle some of the more complex elements of financial planning including investing. Setting up an account with a small amount of money which you use to make minor investments with your children can be a great tool to help with introducing your child to the stock market.
This can then provide scope to discuss why and how investment decisions are made. Letting children select their own investments may initially mean they choose for their own reasons such as liking a company name. Over time you can introduce more complicated concepts such as investigating the background of companies, their management approach and price to earnings. You can show how these steps can be used to analyse successful investments – which also keeps things interesting and practical!
Letting chosen investments play out, again with small amounts, will help your child learn from the mistakes and celebrate the wins. We all learn more from failure than success, and so taking these first steps together can help children build confidence and skills which they can rely on later. As they become more independent, they’ll be much more able to manage their own money and investments on a larger scale.
It can also be worthwhile to involve your older children in pre-arranged meetings with your own financial planner. They will have the opportunity to better understand the assets you hold as a family, and ask questions in an open financial discussion, as well as see you asking questions of your own. This can help children become more aware of their own financial situation, particularly if they might be in a position to receive wealth in later life. We offer this exact approach through our own Freedom service, ensuring that financial discussions incorporate those members of your family who you’d like to be involved.
Taking these steps together can help you equip your children with a solid understanding of the importance of lifetime financial planning.
To find out more about our Freedom client service, or to discuss any aspect of your family’s financial planning, please contact your nearest office.