A healthy attitude to childhood money matters can pave the way for a life of sound financial decisions
WHEN the school year starts in September, British schoolchildren will find a new addition to their timetables: financial education. In maths and citizenship lessons, 11-year-olds will be taught the skills and knowledge to manage their money and make sound financial decisions, while from the age of 14 pupils will learn about taxes, wages, debt, risk and a range of financial products. But is even 11 too late to be learning these vital skills? A study conducted by Cambridge University found that “by the age of seven, most children in the UK are capable of complex functions such as planning ahead, delaying a decision until later and understanding that some choices are irreversible”. Caroline Rookes, the chief executive of the Money Advice Service, said the study “demonstrates the power of parental influences, and illustrates how much of what you learn and absorb when you are young, both consciously and subconsciously, affects the choices you make throughout the rest of your life”. Regardless of what is taught in school, most parents will hope to instil a sense of financial responsibility from an early age at home too. Whatever advantages your children may have gained by having been born into a financially responsible family could all too quickly be squandered if they’re not ready to handle their own finances. Giving them the skills to handle small amounts of money when they are young will help foster a sense of the power and value of money, and encourage them to take care of larger sums – their own, or bequests from others – when they are older. Here are some ideas about how to foster good money habits from an early age. Kick-start a savings habit: Start with small children by giving them two piggy banks, one labelled “saving” and one “spending”. Talk to your children about what they would like to save for – a toy or special trip, for example, but keep it manageable so that the goal is in sight – and discuss how much of their pocket money they think they should put in each pot. If you think charity should also start young, add a third piggy bank for “sharing”. Teach them restraint and compromise: Get your children to weigh up the trade-offs they must make in shops – if they have a comic, they can’t have sweets, for example, or if they go without sweets for three weeks, they’ll be able to afford the new toy they’ve had their eye on. Let them know that you make similar decisions when you decide how to spend and invest the family’s money. Teach them how difficult it is to acquire capital: In other words, show them the value of money and the effort it takes to amass it. You could set a relatively low “basic” rate of pocket money, which they can supplement with additional earnings by carrying out household tasks. Teach long-term money management skills: As your children get older, give them their allowance in larger, less frequent instalments in order to encourage them to budget for the long term. Talk to them about forthcoming expenses, for example buying Christmas presents, and how they might need to set some money aside to make sure it’s there when they need it. Show them how money grows: “The most powerful force in the universe is compound interest,” Einstein is quoted as saying. “Those who understand it, earn it; those who don’t, pay it.” Make sure your children are on the right side of the bargain by teaching them how they can earn interest on their savings, and then interest on that money too. You could open a Junior Isa for them and talk about how much they could save by the time they’re 16. When they are old enough to understand, explain the trade-off in risk between putting their money in cash or in potentially faster-growing investments like stocks and bonds. Awaken the investment bug: There’s nothing like having skin in the game to gain a basic understanding of how markets work. Encourage teenagers to select five stocks they think might perform well, show them how to study the financial data for each one and then let them choose the one or two that most appeal. Whether they make money or lose it they’ll learn something valuable. Play games: Plenty of apps aim to teach people of all ages the basics of money and business. But when it comes to gaining an understanding of concepts like probability, the role of chance, risk psychology and competition, the old games are often best. It’s no coincidence that so many talented financiers and entrepreneurs cite an early grounding in chess, backgammon, poker or bridge. And Monopoly is hard to beat for an introduction to capitalism in action.Click here for more information on planning for your family's future, from Lloyds Bank Private Banking · Subscribe today and get 6 issues completely free. Source: The Week UK