Why we need to talk money with our children
The nature of our work means that our clients already enjoy financial success, or are at least on the right path, but some wish they’d had more support early on. For most, money wasn’t discussed in any depth at home. This article from AJB Wealth explores how we can help the next generation.
Talking about money remains one of the greatest taboos, even within families, but are we missing a trick by not being more open with our children? A more proactive approach can not only instil good financial habits, but nurture other positive traits that will help our offspring navigate life successfully.
Today’s children grow up in world where a fabulous array of consumer goods is instantly available–we tap our cards in shops, swipe on our phones, our purchases often arriving the next day. But as we use coins and notes less, it’s easier than ever to ignore the topic of finances altogether. This is especially true in more affluent families. In contrast, families working to a strict budget will talk about money on a regular basis out of necessity. Anyone who’s seen the TV series Rich House, Poor House, on Channel 5/Netflix, will know what we mean.
Do children have too much today?
In all cases, children learn by observing the spending habits of their parents. But they may not understand the context. They might be unaware of the punishing hours that mum or dad put into building a business or becoming a distinguished doctor. Let alone any sacrifices made to pay for piano lessons, football camp, or indeed school fees. Most will have little understanding of the overall financial position.
What’s more, children from all backgrounds seem to enjoy an abundance of toys, clothes and entertainment compared to previous generations. While many parents worry about spoiling their children, it’s hard to deny them what their peers have. And that’s without considering the impact of social media in the age of Insta-gratification. People often complaint that youngsters today are entitled, but if true, is it any wonder?
When to start talking money with your kids
The current landscape perhaps makes it more important than ever to work on good financial habits from an early stage–some say from three-years-old. At this age, you might role play shopping, for example. Research by the Money Advice Service (now part of the Money & Pensions Service) shows that children who are encouraged to talk about money, are given money regularly, and are given responsibility for spending and saving tend to do better with money when they grow up. Far better to make mistakes with £2 now, rather than £20,000 in the future.
How to stop your children being spoiled
While extremely important, this is only part of the picture. In his book, The Opposite of Spoiled, Ron Lieber explores how money can be used as a tool to instil other life skills, and to bring up children to be ‘the opposite of spoiled’. As he says, ‘Every conversation about money is also about values.’ He pinpoints seven traits that are ‘the opposite of spoiled’ and which he believes can be taught through money. These are: generosity, curiosity, patience, perseverance, thrift, modesty and perspective.
Involve your kids in discussions about money
This involves encouraging children to talk and ask questions about money, and being open in return. That’s not to mean you must immediately tell your young child exactly how much you earn or how much money you have. A starting point might be to begin building a picture of how the family finances work–what it costs to pay for things that the family has and does.
It’s important to involve children in discussions about money, so they understand that choices are made. Spending money isn’t necessarily a problem in itself, but it’s important that they have an understanding of the overall picture.
Pocket money is an excellent tool for learning to handle money and instilling the other traits. For example, a child may learn about perseverance and thrift through saving for a much-coveted item. Or generosity through giving a percentage to a good cause.
Should children work for their pocket money?
Lieber’s children received pocket money–always called an allowance in his house–from a young age, and kept it in glass jars labelled ‘give’, ‘save’ and ‘spend’. Interestingly, he believes an allowance should not be dependent on children doing chores. In his mind, an allowance is to teach about money, while children have plenty of other opportunities to learn a good work ethic. What’s more, children should do their bit to help at home as a matter of course. Others firmly believe that there should be a connection between working and receiving money.
Are you open about money worries?
Most people are reluctant to reveal any money worries to their children, for obvious reasons. However, children are naturally inquisitive, always watching and alert to people keeping things from them. Silence on the subject of money could be far more worrying than the truth. Parents who explain their financial decisions to children can be positive role models.
Introduce your children to investing
Even primary school children can start to grasp the concepts around investing. Board games such as Game of Life, Pay Day and Big Money might help introduce the idea in a fun way. Creating a mock portfolio online is easily done, and would allow you and your child to pick out shares and funds, and follow their progress. Companies they know and can relate to, such as Disney, Mattel and Nike are more likely to hold their interest. A Yahoo Finance account provides access to the tools you need. Alternatively, you could simply create your own spreadsheet.
Investing for your children
This article is primarily about educating children about money, but if you wish to invest for your child or grandchild, it’s possible to put up to £9,000 a year into a Junior ISA for them. They will be able to access these savings at the age of 18. Putting money into pension savings for them offers good tax breaks, and could amount to a substantial sum in the future. Up to £3,600 can be contributed to a Junior Self-Invested Personal Pension for your children or grandchildren in the current year. With tax relief at 20%, this means you can pay in up to £2,880 and the government will top it up by £720. This is true even though the beneficiary is unlikely to pay tax.
Most parents have firm ideas about the qualities they wish to see in their children. One of the most effective strategies is to behave how you wish them to behave. This is true when it comes to financial matters too, but unless parents talk about their financial decisions, youngsters will lack the understanding and context. A companion article to this one looks at six good reasons to discuss your finances with adult children.
At AJB Wealth, we place a high value on integrity, honesty and transparency. These qualities are vital in both our family lives, and our work as financial planners and investment managers.
The AJB Wealth team is well placed to help you and your family plan your financial future. To discuss your situation, please book an obligation-free consultation, or call us on 01428 774 070.
Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise. And in the event of early encashment, you may receive less back than your original investment.
