Learning to be a financially savvy family
Some families have no problems openly discussing their finances, but for others it’s more of a challenge. The Money Advice Service says that 58%1of parents report finding it difficult to talk to children about financial matters.
Many people say they aren’t comfortable talking about money with their children. One of the reasons parents give is that they feel children shouldn’t be troubled with adult responsibilities. However, giving your children the skills and confidence they need to manage their money early in life can help them avoid money worries in the future.
GETTING THE BASICS RIGHT
There are basic financial management skills that it pays to acquire from an early age. These include knowing how to draw up a budget and what should go into it. Getting into the savings habit early and putting even small amounts away regularly, will help to build up a rainy-day fund. Knowing how interest rates affect the amount of money you pay back on a loan or mortgage, and how compound interest can help savings grow, are all useful lessons.
CREATING LEARNING OPPORTUNITIES
Getting involved with the family shop can be a good opportunity for children to learn about making the right financial choices. It can help them understand from a young age that money is finite, and sometimes choices have to be made in order to keep within a budget.
There are practical ways to help children save, such as a Junior ISA, which gives them the opportunity to see how a tax-efficient savings account operates, and they can watch their money grow over the years. The savings limit for the 2018–19 tax year is £4,260, and once the account has been opened by a parent or a guardian, then family and friends can also contribute within the annual JISA limit. No withdrawals can be made until the child is 18 (except in special circumstances), meaning that if a child saves regularly, an ISA can represent a useful nest egg when they reach adulthood.
Talking to children about family expenditure such as holidays, and how you arrive at a budget for them, will give them the rudiments of money management. When interest rates rise, talking as a family about the implications for your mortgage and the family budget will help prepare them for the day when they’re ready to take their first steps on the housing ladder.
1The Money Advice Service
The value of investments and income from them may go down. You may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.