Who will teach your children about money?
Many parents shield their children from the reality that is money and finance thinking it may stress them out or compromise their innocence. This normally happens in families where money is a sore subject and is not a good approach.
Unless your child is studying economics at school, they are more likely to learn about the mysteries of trigonometry than the basics of money. Which is more important? At secondary school, I could discuss the hypotenuse of a right-angled triangle but couldn’t fathom what a mortgage was. My parents never discussed money in front of me.
Occasionally, when I’d ask for a financial contribution, my father would lose his temper and shout: “Do you think I am made of money?” I still had no idea what he was talking about. It is therefore important that you teach your children about money as early as possible.
This is arguably the most important money lesson a parent can teach their child. Giving your child pocket money and teaching them how to manage it is a great life lesson. My suggestion would be to give your child a finite amount of pocket money every week or month and no more. The stricter you are, the better because that’s how real life works. Most people have to live on a wage and when they run out of funds, it’s tough. Pocket money should be no different.
The concept of borrowing can be taught by using pocket money as a basis. When your child runs out of funds and becomes desperate, you as a parent could lend to them, but only if they have a good track record of previous borrowing. If you are really committed, you could even give them a mutually agreed method of repayment and charge interest on the amount borrowed! This should prepare them for the dangers of borrowing money in real-life.
Playing Monopoly is a great way to teach your child about the concept of investing, but there are other lessons to be learned through the game. Being rich, being broke, paying tax, purchasing property, paying fines, paying rent and the misery of going to jail and are all great financial life lessons.
Related service: Pension advice
Risk and reward
A parent’s instinct is to insulate their children from harm. It is, therefore, understandable why risk doesn’t get discussed much at home. Parents who have equity based investments such as stocks and shares ISAs should discuss them with their children, especially when they are in their teens. The concept of risk v reward can be a difficult one to explain. However, teaching children about risk in a controlled environment, i.e. at home could be a vital way of preparing them for later life.
The best way to teach children about the value of insurance is to tell them why you insure your home, your car, your travel, your life and your health. Discuss claims with them, talk to them about your premiums and what you would have to do to make a successful claim.
It is best to be open and transparent with your finances with your children. Don’t be afraid to discuss what you earn with them, be open about financial problems and celebrate financial success with them. Teach them to keep your affairs confidential but try not to hide anything from them, even when times are difficult. You’ll be doing them a big favour.
Enjoyed this article? Here are a few more on the topic of financial planning and wealth.