5 key financial lessons to teach your children and grandchildren for the new year
One of the major motivations you might have for building your wealth is so that you can support your children and grandchildren for the future.
Beyond building up savings or an investment pot to give them when they reach adulthood, another effective way you can support the children in your life is by imparting your financial knowledge to them.
After a lifetime of carefully managing your money, you’ll have a range of valuable insights to share with your children and grandchildren across a range of different financial topics.
According to MoneyHelper, children begin building their financial attitudes from as early on as age five. As a result, it’s vital to give them a firm understanding of basic financial concepts early on to ensure that they pick up healthy, lifelong habits that will stand them in good stead for adult life.
Here are five key financial lessons to teach your children and grandchildren in 2023.
1. The value of money
For young children, a good starting point is for them to grasp the value of money. Otherwise, without this firm understanding, it can be difficult to instil any other lessons you try to teach.
PBS reports that children start to grasp basic money concepts from age three, so your children and grandchildren will understand that its purpose is to buy things such as food and clothes.
However, the crucial lesson you need to instil with the children in your life is that this money is both earned and finite. It’s simple but incredibly important for them to know that the money they have is valuable as a result.
An effective way to teach them that money is earned could be in offering them pocket money in return for chores, such as helping with the washing up or the gardening.
2. The difference between saving and spending
Once children know what money is, how it works, and why it’s valuable, the next key step is showing them the difference between saving and spending – and why it matters.
Your child or grandchild needs to know that saving and spending are different ways of managing the money they have, each with its own purpose. So, explain that while they can spend the money they have on the things they want, it can also be sensible to set some aside for later.
A good way to make this tangible is to have them consider what they want to do with their pocket money. For example, you could offer them the choice between buying something small now, or saving up for a toy they really want. This will help them see that saving is an effective method for affording luxury items if they’re willing to be patient.
This simple exercise will also show them how various items have different values, teaching them that sometimes they will need to save.
3. What it means to budget
As part of teaching the difference between saving and spending, it can also be worth discussing budgeting with older children.
There are going to be times in your children and grandchildren’s lives when they’ll need to prioritise certain payments, sometimes forgoing the things they really want. So, knowing how to budget and spend accordingly is a crucial skill for them to have.
You could even explain this to them by having them regularly buy something from their pocket money, such as a subscription to a magazine they like or perhaps food for their pet.
By having a fixed financial obligation, they’ll learn how to prioritise their spending wants and needs in a practical, hands-on way.
4. The importance of long-term savings and a rainy day fund
Alongside saving and budgeting, it’s worth taking the time to teach your child or grandchild about long-term saving, and why it’s important.
It’s useful for the children in your life to understand that sometimes, they’ll have unexpected expenditures. Explain that, for times like these, being able to rely on a rainy day fund can be extremely helpful, especially as they’ll still need to meet their regular financial obligations.
This might even include some discussion about pensions. You don’t need to get into the ins and outs of employer contributions, investment returns, and tax relief. Just explain in simple terms that to make sure you have money for the future, you set aside a bit of your income each month to live on when you retire.
By teaching them this lesson, you can have confidence that your child or grandchild will look to prepare for their financial future, just as you have.
5. What debt is and how it works
For older children of around secondary school age, it could be useful to show them what debt is and how it works.
Debt has a rather bad name but, provided that you use it carefully, borrowing can also be a useful tool.
Describe debt to your child or grandchild in as simple terms as possible: you are given money, a product, or service in return for the promise that you will pay it back. Briefly explain the concept of interest, perhaps using the comparison to the interest they might receive on their savings as an example of how this works.
A mortgage can be an effective way for you to do this, as your child or grandchild will understand the importance of having a roof over your head. They’ll also grasp that homes are expensive, and so explaining that most people need to borrow to afford one will make sense to them.
It may also be worth outlining the risks of debt, and why it can sometimes be a double-edged sword if you take on too much.
It’s important for your child or grandchild to fully understand how debt works so that they use it responsibly when they choose to do so.
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If you’d like to find out more about how we can help you secure your wealth for your family, please get in touch with us at Britannic Place.
Email firstname.lastname@example.org or call 01905 419890 today.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.