The first Child Trust Funds reached maturity recently. This got me thinking about how children and young people learn about money and financial planning. For the most part, what knowledge they do have is likely to have been handed down to them from their parents.
As advisers 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 society level.
Until financial education finds its way onto the curriculum, I think those of us within the financial advice 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 number of my colleagues I have put together 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 £100 jeans and asking if they are worth £100 in paper money, he instead looks at the effort of earning that money. He’s inviting them to ask themselves: “Are those jeans worth mowing my parents’ lawn 10 times for £10 a go?”
The answer to this question will be different for every individual, and it is 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.
Life is 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 house deposit later 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 really 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 always afford everything
Maybe a slightly harder lesson, and potentially one for the more grown up of the younger generation, is the importance of learning to accept they are not able to do everything. I’ve been there myself, wanting to do everything and go everywhere, and I think it’s natural to want the world when you’re younger.
But 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 do is the best way to not get hung up on the things you might have to sacrifice.
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 every day life.
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 whole. The best client outcomes and the best stories many of my colleagues can recall come from helping clients to achieve things that do not have monetary value.
In helping young people to learn about finance and 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 or 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 they use money as a means by which to enrich and improve our lives that’s key.
If you would like some help and support with your financial planning, please get in touch.