BLOG: How to teach your children to save
Today, America will be taking part in ‘teach children to save day’ as part of a month dedicated to financial literacy. It’s not a day we seem to observe here in the UK, but I think we should! Money can’t buy you love, but it can buy you a secure future and I firmly believe that teaching the value of money to children is an essential life skill.
Throughout teach children to save day, bankers, financial planners, and other banking professionals travel to their local schools and teach students, from kindergarten through high school, about money. The day is not only about saving – it’s also about spending, donating, and investing.
I’ve written about this in the past – looking at how you can teach children as young as pre-schoolers about things like budgeting for food shopping, the impact of inflation and balancing risk and reward. Because by encouraging these vital habits in children while they are young, it is more likely they will be able to handle their money better in the future.
Cost-of-living crisis encourages money lessons
The good news is, I think I’m pushing on an open door with this subject. Research from personal finance comparison site finder.com in November last year revealed that the cost-of-living crisis has spurred a third of UK parents to teach their kids more about money and more than 50% will do so before their children reached the age of 11.
The research also found that using real life examples is the most popular way of teaching kids, with 49% of parents using this method. The second most popular method was setting them up with traditional children’s banking accounts and sharing advice verbally (44% each).
Start with the basics
Perhaps unsurprisingly given my job, I think that teaching your children to invest is one of the most important skills you can impart to them. It is a valuable life skill that can help them achieve financial independence, build wealth, and secure their financial future.
But before diving into the specifics of investing, it is important to start with the basics: the importance of saving money, budgeting, and setting financial goals. Explain to them how money works, how to manage it, and how to make it grow. This will give them a solid foundation to build upon.
Invest in what they know and understand
Once your children have a good understanding of basic financial concepts, you can begin to introduce them to different investment options. A really good way of doing this is to set up a Junior ISA for them and invest a little each month – just £10 will be a good start – into assets they can relate to. This means investing in companies and products that they use and understand.
For example, if your child loves technology, encourage them to invest in a fund that invests in technology like AXA Framlington Technology, Sanlam Global Artificial Intelligence or Guinness Global Innovators. This will help them stay engaged and interested in investing.
Teach them to diversify their investments
Another important lesson to teach your children is the importance of diversification, so you can help them reduce their risk and increase their chances of achieving long-term investment success.
While most children can be 100% invested in equities given their very long time horizon, diversification doesn’t have to mean investing in other types of assets like bonds or commodities – at least not yet – it can include investing in different industries, and geographic regions too.
For example, more generalist funds like Trojan Global Income invest in different companies from all over the world but happen to have holdings such as Nintendo and Pepsi today – which might appeal to young gamers.
Alternatively, your child might be interested in putting money in the faster growing areas of the world like China, India and Vietnam via a fund like Matthews Asia ex Japan Total Return Equity, or investing in aspirational companies like Ferrari and Moncler via FTF Martin Currie European Unconstrained fund.
The more environmentally and socially conscious child may instead prefer a fund like LF Montanaro Better World, Rathbone Greenbank Global Sustainability or Edentree Responsible & Sustainable Equity – all funds that not only deliberately avoid certain companies that are harming the world or its people, but also explicitly seek out those that are helping make the world a better place.
Will it work?
It may sound like a lot to take on, but it will be worth it, I promise you. A colleague’s 27 year-old son has just started a new job, and, after years of her ‘nagging’ about how “you can’t put new hoodies in the bank”, he shocked her when he casually dropped into the conversation that he thought at least 20% of his new income would go towards savings.
He even quoted the 50/30/20 rule (50% on needs, 30% on wants and 20% savings), which was the budget system she used when he was a child. It might not look like they are listening or taking things in… but they are!
Juliet Schooling Latter is research director at FundCalibre