In 2020, when the first Child Trust Funds were starting to mature, I wrote an article thinking about the ways in which children and young people learn about money and financial planning. Five years later as the new school year starts, I thought it as good a time as any to revisit that article.

As financial planners we often call for better financial education at school level, where equipping children with financial literacy skills could make such a significant long-term difference to their lives. What’s more, aiming for a basic level of financial education from childhood would also surely bring benefits at a societal level.

Until financial education finds its way onto the curriculum, I think those of us within the financial services industry have an obligation to think about how we can contribute to increasing the level of financial education in children and young people. Together, with a few of my colleagues, I have put together five tips for young people about financial planning with a few points and lessons that would be a useful primer in beginning their financial education.

The time value of money

One very important lesson that a colleague has instilled in his own children is the time value of money. Instead of looking at that new pair of shoes and asking if they are worth the price tag that’s attached, he instead tries to get them to look at the effort of earning that money. He invites his children to ask themselves: “Are those shoes worth mowing my parents’ lawn ten times?”

The answer to this question will be different for every individual, and it’s about helping the child find out what they value and weighing that against the effort and time it takes to achieve it. This is a question we can all ask ourselves more often, however old we are, when it comes to spending our hard-earned cash.

a balance between today and tomorrow

Whilst it may be human nature to seek instant gratification, a sensible approach to life and financial planning involves striking a balance between today and tomorrow. For some of the younger generation that may mean denying themselves a treat today so that they can direct their funds towards saving for a first car or house deposit later down the line. Installing a mentality that you can reward yourself, but that it shouldn’t be at the expense of the big goal down the line.

Again, this is a lesson that rings true regardless of age and is an idea that we try to work through with clients and agree on before moving forward. We invite them to think about what, for them, are the important financial goals of today, versus what they want from their future, and show how these goals are connected and can impact on each other.

You can’t afford everything

Maybe a slightly harder lesson, and potentially one for children fast approaching adulthood, is the importance of learning to accept they simply cannot do everything. Speaking from experience, it’s natural to want the world when you’re younger. However, sometimes you just need to learn to sit and wait until you can afford it or just accept that it’s not going to be possible. Prioritising, planning and focusing on what you can achieve is the best way to not get hung up on the things you might not be able to do.

A short lesson on the stock market

A basic lesson in how the stock market works and what relevance it has to individuals and their financial plans can be valuable for young people. Most will have some knowledge or will have seen reports of stock market movement on the news but often this can seem unconnected to their own lives.

It can help to explain what the stock market is and what can it do for individuals, using an example to bring it to life, like the alternative it offers to saving your money in the bank (see below). Explaining the potential risks as well as the potential rewards clearly gives a rounded view of what investing in the markets can do and how it can relate to everyday life.

Example lesson – cash versus the stock market

Cash savings will always have their part in life. They provide financial security and certainty, knowing you have a buffer to fall back on. If you want to buy a car when you turn 18 and you need £10,000 then you will likely need to put away the vast majority of that £10,000 to achieve your goal.

The stock market, on the other hand, offers something different. As stated on the FCA website[1], savings accounts generally offer specified rates of return, but many investments like shares have rates of return that vary, especially over the short term. Investing on the stock market also comes with greater risk and the potential to experience a fall in value as well as rise, which means you can also lose money. If things go your way you may reach your £10,000 goal whilst only actually saving £8,000. Conversely you may end up saving more than your goal as your investments have lost money.

Understanding the role of money in their life

It is undeniable that money and finances will play a part in everyone’s lives, however it’s important in any financial lesson to emphasise that it is a part of a broader picture. The best client outcomes and the best stories that myself and many of my colleagues can recall come from helping clients to achieve things that do not have monetary value.

By teaching young people about financial planning and helping to develop a healthy relationship with money, we also have a role in demonstrating that money is not an end in itself, rather, it’s what money will allow them to do that should be the focus.

This might mean the financial foundation to buy a house or the freedom to start their own business. Maybe it can fund the education they will need to achieve their career ambitions or even allow them to start making plans to retire early and travel the world. It’s how anyone uses money as a means by which to enrich and improve their lives that’s key.

If you would like some help and support with your financial planning, please get in touch.

[1] Risks and returns – fca.org.uk, 2023