This Summer, Give Your Kids Some Valuable Lessons in Finance + Here’s How You Could Potentially Give Them £582,259
It’s a scary (financial) world out there for your kids. Recently, The Guardian reported that according to OECD research, the vast majority (88%) of young people simply don’t get the concept of money.
One in five people are financially illiterate, incapable of grasping basic shopping conundrums – such as, is that nine-pack of loo roll better value than two four-packs?…Only 12% of 15-year-olds got the questions right.
– Patrick Collinson, Reporting in The Guardian
The consequences of weak financial knowledge are all around us – threadbare bank accounts, insurmountable overdrafts, and homes lost to foreclosure. It’s true that many fall into such circumstances because of difficult times. However, casting a safety net of financial knowledge early on can make it so that your children are less likely than their friends to fall into financial hardship down the line.
You don’t have to be rich to give your children a secure financial future
To help your kids have a great financial future, the most valuable thing you can give them is 100% free – knowledge. But how can you break down the lessons into easy to grasp concepts? Read on – you may learn something that could boost your bottom line too.
Most Importantly: Teach by Example
Lessons learned in our earliest years stick with us the most – for better or for worse. If kids see their parents making impulse purchases at the till, sooner or later they will pick up the habit for themselves. However, if they see their parents cut back on takeaways for a month so that they can enjoy a holiday the next, they will pick that up too.
A child’s biggest influencer is their parents. Always aim to model the best spending behaviour possible around them – including delayed gratification, and living within your means.
Thoughtless Spending = A Stolen Future
Careless spending leads to money leaking out of our accounts before we know it. This can happen in 2 ways:
- – Small spends adding up into large costs – such as buying a £2 fizzy drink every day, which totals up to £70 a month, or £730 a year.
- – “Default” overspending – accepting that certain life costs are high like it or not (not true), and not being bothered to do anything about it. For instance, if you assume you have to spend £100 on your energy, when you can get the same service for £80 from a competitor, that’s £240 lost per year, for no good reason.
Let’s say we cut out both of the above from your spending – that’s £970 per year, which could be a nice holiday.
For kids, this can be explained like towels on a kitchen roll. When a kitchen roll is brand new, taking off a sheet here or there has little visible change. But as the roll gets used more and more, each towel makes it slimmer and slimmer. When you are down to the last few sheets, each sheet counts – and if you’re not careful, you are out before you know it. Your bank balance works the same way. Right after a paycheque, your account is full, and it feels like a fiver here, a tenner there hardly makes a difference. But towards the end of the month, those fivers and tenners are dearly missed, especially if you can hardly remember what you spent it on.
Setting Some Aside – Consider the 30 for 30 Rule
You want to buy a £100 Gadget, and have just earned £100. You can afford it, right?
Having £100 does NOT mean you can afford to spend £100. A good policy is the 30 for 30 rule: Save 30% of what you earn + wait 30 days for big purchases
Before you reach the end of the month, unexpected bills can arise. That’s why you should always try to wait at least 30 days before committing to a big purchase. So, in one month, you should save £30, and then feel free to spend £70. Then in two, you can spend £140 (with your savings now at £60). Save £30 each month for 60 years, and one day you will be looking at £337,578.53*. Not bad, huh?
And as a bonus, maybe the appeal of the £100 gadget would have worn off by then – it often does. But you have £140+ waiting for you for when the next gadget comes around.
Make shopping into a game of outsmarting
Bargain hunting can become a sport – the thrill of accomplishment from massive savings can give a nice mental boost. The key is to never buy something just because it’s on sale – rather to save as much £££ as possible on things you need to purchase regardless.
So think about it – if you want to buy a £10 toy, you can wait 1 month and get it for £5 – so you can save/invest the other £5, or buy 2 £5 toys.
Technology such as Shoptagr can help you track sales on things already on your list.
Early Earnings (Including Entrepreneurship)
Where does money come from? The Guardian gave a rather amusing view on what some children say is the answer:
In a Flight of the Conchords video, the band ask children this very question. “Banks,” comes the answer. And where do the banks get it? “The prime minister.” Where does the prime minister get it? “The Queen.” And where does she get it? “Banks.”
If children see money as an abstract thing that is given freely, it may be hard to separate that concept from their mind when the shops are beckoning – now or in years to come.
Have your kids earn to get what they want
How many working hours equals getting a £100 toy? If your kids get £15 per week allowance, it will take more than 6 ½ weeks to get it – or a month and half.
Remember how epically long a month felt when you were a kid? The wait just may dissuade them. A few years down the line, they may shape that thinking to realise that new gadget or an expensive car payment costs 1 full week of work – which just may take the sheen off the appeal.
There may also be a lesson here that shapes ingenuity. Just like in adult life, making money on the side just may make getting that £100 much easier. Making £15 for cleaning a neighbour’s car once a week for instance will double the speed of getting that toy – and will make them the more clever for it.
Here’s How You Could Potentially Give Your Kids £582,259
Consider starting a (very) early retirement fund
You may know that the earlier in your career that you invest in your retirement fund, the more it will grow with compound interest.
Remember earlier, when we spoke about how small changes could quickly lead to an extra £970 a year? If you are really clever, and annually invest that £970 for your kids from birth to age 7, they could have an incredible £582,259 waiting for them by age 67* – buying them years of financial freedom.
Lowering your energy bill by £20+ suddenly seems a lot more worth it, doesn’t it?
Image is Nothing
Marketers know that one of the easiest audience to target is children. Kids learn early on that showing off designer sneakers or the latest toys on the playground can get all kinds of attention.
This of course may prove to be harmless. But too often, children fall pressure to advertising, and they learn that just gotta have it behaviour. Over the years, the need to impress others with £50 toys can turn into £50,000 cars or £500 gadgets. Gone to the worst extreme, this leads to debt and even bankruptcy.
A Final Lesson: Learning The True Value in Life
Think back 5 years – what fun things can you remember doing? Perhaps a great holiday, or an exciting concert?
But, what clothes did you buy 5 years ago? What did you get at the grocery store back then? What online purchases were delivered to you
That one’s not so easy to remember, is it? That’s because, in the long run, material things just slip out of our minds. Study after study has proven that spending on material goods gives us only a fleeting high, lasting a few days at best. However experiences – like a great concert or holiday, stay with us throughout our lives. If you were to ask and older person about their favourite memory when they were young, it almost certainly would be something they did or somewhere they went – not something they bought. It’s valuable taking a step back, and learning this perspective as early as possible.
Remember, they don’t get it (yet)…but they will.
When many of us are very small, we don’t yet understand the concept of money. All we know is that we want something, and this thing called money can make it happen.
However, with good parenting, eventually children do see that money is more math than magic. All parents have to do is make sure children see that there is a limit to purchasing power, and you simply cannot spend more than you earn.
One of the most important conversations you can have with your children is about money. Few things can be handled in a way that severely hinders or frees their lives – so be sure to start these lessons as early as possible. And most importantly, make sure the whole family never stops learning!
To easily save on your energy tariff (and possible invest in your kids’ future!), you can quickly switch here.
To learn more about managing money throughout life, check out our moneyhelpline guides.
*Based on 60-67 years of compound interest at 7%.