As we’re sure you already know, when building your wealth, it’s important to start from a solid foundation of good financial sense. If you’re planning to leave a legacy for your children, you’ll probably also want them to have all the skills they’ll need to manage it effectively.
To make sure that your children form good lifelong habits, it’s important to start early. Read on to find out the seven best strategies for teaching your children how to manage money.
Even from a relatively young age, you can teach children how to manage their money in simple but effective ways. While a pre-teen might be a bit too young to manage a savings account by themselves, you can still teach them about finances in a way that they understand.
Set a weekly budget for treats
One of the easiest ways to do so can be with a small weekly budget for treats. If you give your child a small but regular allowance each week, it can teach them how to budget properly – should they save up for a bigger treat or buy regular, smaller items?
Get your child a piggy bank so they can watch their money grow
Young children can sometimes also learn more easily if they can see their money growing. This is where a good old-fashioned piggy bank can help.
If your child wants something more expensive, such as a new bike, for example, then using a piggy bank can help them to understand the value of saving some of their pocket money now for a greater reward later.
You could also pay interest on their savings so they can see the benefit of leaving their money to grow.
Let them earn their pocket money with chores
As they start to get a little bit older, asking children to earn their pocket money – perhaps through undertaking household tasks – can be a good idea. Not only is this a good way of teaching them the value of hard work, but it’s important for them to see that money doesn’t grow on trees.
Once your child grows to be a teenager, it’s time to give them slightly more challenging financial jobs to teach them more sophisticated skills.
Help them learn to budget by including them in your meal planning
As you may know, teenagers need a lot of energy to grow. So, at this age they can eat you out of house and home if you aren’t careful. Since food is so often on their minds, this can be a great segue into learning financial skills.
For example, a great way to teach them about household finances is to get them involved in your weekly shopping and meal planning. This can help them to develop their budgeting skills in a practical way.
Of course, this also has the added benefit of giving you the opportunity to teach them about cooking, which will be important as they get older. Both of these skills can be essential if they decide to go to university when they grow up.
Teach them to manage money through smartphone apps
If they own a smartphone, you may also want to consider introducing them to apps such as RoosterMoney or gohenry, which can teach them more about managing their finances.
With these apps you can arrange pocket money transfers, set saving goals, and list chores for them to earn some extra cash. Since both apps also offer debit cards, with parental controls, you can safely introduce them to the concept of spending money with a card.
Let them make mistakes with their money
As unusual as it may sound, this can also be a good time in your child’s life to let them make financial mistakes. Since these mistakes will probably only involve small amounts of money, they won’t have as much impact on their long-term financial wellbeing.
For example, if they want to spend their entire month’s pocket money on videogames, then they’ll learn the hard way that once the money is gone, it’s gone.
While you may agree that this isn’t a sensible use of a child’s pocket money, making mistakes like this is an important part of the learning process. After all, it’s better to lose £50 at 14 than to lose £5,000 at 24.
By the age of 15 or so, your child should have a good grasp of some of the more important financial skills. However, while the previous strategies focused on saving money, it’s important to teach them about growing it too.
Teach them sound investing rules by opening a Junior ISA on their behalf
One of the best ways that you can do this is by opening a Junior Stocks and Shares ISA and encouraging them to help you manage it. Not only can this be a good way to grow their wealth in the long term, but it also gives them first-hand experience with dealing with more complicated financial matters.
You can sit down with them and ask which companies they’d like to invest in, as well as helping them to research good potential investment opportunities.
Once they turn 16, they can control the ISA themselves, although they can’t withdraw money from it until they reach 18.
This can be invaluable for teaching your child how the stock market works, the importance of diversifying their investments, and how sensible decisions can result in strong growth over time.
Learning how to manage your finances is an essential life skill, which is why it’s important to take an active role in your children’s financial education. Doing this can give you peace of mind to know that they’ll be able to manage their money in a sensible way once they’re old enough to fly the nest.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.