4 ways to improve your children’s understanding of finances
As a parent, you’ll no doubt want to ensure that your children understand the pitfalls and power of the financial world. Yet it’s a task that’s becoming ever more challenging.
Increased access to credit cards and debt, electronic banking, and the gradual demise of cash means that parents need to consider different approaches when educating their family about finances.
Even so, the core principles that will set children and teenagers up for a prosperous future haven’t fundamentally changed over time. They’re well worth taking the time to chat about.
Here are four principles to consider passing on to your kids, to help them understand money and finance.
1) Apples grow on trees – money doesn’t!
As your kids get older and look to leave school, they’ll also have financial obligations to meet: entertainment, technology, fashion, hobbies, buying their first car, HECS or HELP loans – all of the inevitable costs associated with growing up and preparing for adulthood.
But until they’ve grown their investments to a sustainable level, they will have to work for their money to meet those obligations.
You might think you’re in a position to help your kids by paying for some or all of these expenses. But have a think about how far you should go in supporting your loved ones.
One of the greatest gifts you can give them is the discipline of working for reward. A child’s first job can not only set them up with the basic skills they’ll need throughout their career, it can also give them a priceless understanding of the value of money.
A part-time job can be a juggle within a busy young life with all its obligations; but consider it also part of their life and financial education. The “return on investment” can be huge.
2) The importance of sticking to a budget
Another great discipline that we can pass on to our children is that of having a spending plan.
Young people usually have limited income, which is why prioritising their expenses and controlling their outgoings is another life skill best learnt early.
There are some great free apps available that can assist with planning, monitoring, and running a budget. Making the importance of budgeting part of a monthly discussion – regardless of your children’s age – will pay dividends for years to come.
3) The “magic of money”
You probably know yourself that budgeting for your finances is made much easier when you have clear goals in place. That’s why helping your children to clearly focus on their future needs and wants can teach them the value of taking a longer-term view of their finances.
Whether it’s a simple savings goal for a new bike, or a plan to buy their first home, focusing on a broader timeframe can unleash the power of compounding interest to do some of the heavy lifting when saving money.
It can help to have some tools at hand when discussing saving over time. Giving your kids an understanding of living within their means and using the benefits of compounding will put them a step ahead on their lifetime finances.
4) Keep an eye on managing your debts
The flip side of compound interest is that, while it can work for you, it can also work against you – such as when you have debts to service.
Today, with credit so easy to access and cash rapidly becoming ‘extinct’, it’s vital to discuss responsible debt management with your children at an early opportunity.
Some important issues to talk about are:
- Delaying their first credit card
- Paying down loans with high interest rates first, and
- The pitfalls of buy now/pay later store facilities.
Having these discussions before your kids even have access to these facilities ensures they’re educated in advance, and more likely to make longer-term beneficial plans for their finances.
Get your kids off on a great financial footing with help from HM
The simple and effective ways you can assist our children to be educated and confident about handling their money are:
- To model positive attitudes and behaviours towards our own finances
- To be upfront about discussing money with kids
- If children aren’t old enough to work yet, reward chores with pocket money
- Support kids to set individual savings goals, no matter their age
Getting these basics right will pay dividends throughout their life.
For a complimentary no-obligation chat with an HM financial adviser, call us on 07 3229 3688 or use the simple contact form here.