Anyone with a young family will most likely want to do whatever they possibly can to provide for their future. There are a number of options for investing your money for future generations, but it can be just as important to spend time discussing your approach to your finances with your children so that they to develop a healthy attitude to money.
Many parents, even those who diligently invest on their children’s behalf, are guilty of not discussing personal finance with their children. The danger is that if the next generation doesn’t appreciate the value of money, and they inherit, or come to look after your finances on your behalf, they may undo all your good work.
The good news is that it’s never too early to start, and by turning personal finance into a family activity it can be both emotionally and financially rewarding.
Here are 10 suggestions that you can try to teach your family about managing money:
1. Start early. Introduce your children to money as soon as they are able to count. Make money an intrinsic part of your children’s numeracy. The concept of interest can be introduced later on as part of learning about fractions.
2. Separate wants from needs. While your toddler might tell you they need pretty much the first thing to come into their head, whatever that may be, making them understand the difference between needs, wants and wishes could help them make sensible spending decisions from a very young age.
3. Encourage savings goals. As a nation we generally don’t save as much as we should but setting goals almost always helps. The same is true for children. Turning toys, bicycles or computers into aspirational items to save for can teach your children a valuable lesson.
4. Save a percentage. Providing pocket money in lower denominations makes it easier to allocate a proportion to savings.
5. Teach them about returns. Make a point of opening their first bank account and show how their savings could benefit from interest if left untouched. Should they then withdraw some money and spend it, demonstrate how this has affected their initially projected return.
6. Let them make mistakes. Allowing your offspring to make spending decisions, both good and bad, will help them develop a common sense approach to the purchases they make. Encourage your children to carefully consider what they spend their money on by suggesting other things that the same money could buy.
7. Set clear boundaries on loans. With the growing trend for parents or grandparents providing capital for their families to buy property, it makes sense to set parameters on any loans given. If you provide a loan to a family member its good practice to set clear parameters on when and how you are paid back and legal advice should be sought as appropriate.
8. Being sensible about credit. If you have credit cards your children will most likely be aware of this; the danger is that they may develop a perception that this is free money, especially when they are old enough to have their own credit cards. Explain the positives and negatives of credit, and teach the significance of paying off a credit card on time and the costs and consequences involved if you don’t.
9. Don’t be afraid to discuss money. Making finances a regular family discussion is all part of demystifying the concept. Time these around dates when your children are due to receive money so that you can talk about saving versus spending. And don’t shy away from talking about your own finances - both the good and the bad decisions you’ve made. Discuss the economy so they understand any impact this might have on their own finances.
10. Make investing a family activity. Why not take it a step further and enrol the family on an online fantasy trading site where an imaginary amount of money is allocated for you to invest in stocks and shares you choose. This will help children learn about the volatility of financial markets and the potential risks involved. You might even learn a thing or two yourself!
For most of us, investing in our family’s future is about generating wealth to help ease the financial pressure on the next generation or even generations to come. In doing so we generally set money aside and spend less ourselves. Spending more time, however, discussing personal finance with your family is not only a valuable family investment but also time very well spent.
Any views expressed are our current in-house views as at September 2016 and should not be relied upon as fact and could be proved wrong.
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