Most parents strive to raise happy, healthy and independent children but teaching them to make financially responsible decisions is an important life skill which shouldn’t be overlooked. As financial advisers, clients frequently ask how they can help nurture their children and grandchildren to become more financially astute. The short answer is that there isn’t one single thing – it is a series of lessons that we teach and impart to our loved ones over time.
Start young
As with any habit, it is best to start good practices early so that they become a way of life. Introducing children to saving from an early age will help lay the groundwork for future years. A routine trip to the shops can provide an opportunity to involve them in the financial decision-making process and lend itself to a discussion on budgets and priorities. Introducing these conversations into everyday situations helps facilitate financial learnings in the formative years.
Teaching patience and delayed gratification is a valuable tool to avoid impulsive financial decisions. Encouraging them to save for purchases and make considered decisions will stand them in good stead as their financial situation and temptations become more complex. Providing them with a solid understanding of the risks associated with credit and overspending is a responsibility we shoulder in raising our children.
Saving for a rainy day and investing for the long term
Saving is the cornerstone of building a secure financial future. By emphasising the importance of consistently setting aside a portion of their earnings, you can teach the next generation the right disciplines, thereby helping them to enjoy the benefits of accumulating funds over time.
As life isn’t always predictable and curveballs can be thrown their way, helping children set up an emergency fund can ensure that they have access to money to cover unexpected costs, whilst allowing their savings to continue building to meet their longer-term goals.
Teaching them to set clear objectives and designing a plan to achieve these will cultivate discipline and foresight. Whether it is saving for a new cricket bat or their first car, teaching them patience and longer-term thinking will equip them for their financial journey.
Whilst we appreciate that retirement is the furthest thing from a teenager’s thoughts, by reminding them that investing is a long-term wealth-creation strategy, you will be laying the foundations for a solid retirement plan and setting them up to benefit from the power of compounding.
Have the tough conversations
At an age-appropriate time, it is prudent to involve your children in discussions around wills and estate planning arrangements. Not only does this allow you to convey your wishes, but it helps prepare the next generation for responsibilities which may involve managing financial resources and making decisions on your behalf. These discussions can nurture a sense of responsibility, encouraging them to attend to their own estate planning arrangements.
Lead through example
Observational learning involves acquiring skills or behaviours through watching others perform them. By practicing sound financial management on your own financial affairs, your children will observe these practices and in turn unconsciously implement these when managing their finances and making decisions around their money. If you want your children and grandchildren to set goals and work towards achieving them, it starts with you setting and pursuing your own goals.
Your actions throughout their formative years and beyond will create a blueprint for navigating their personal finances. More powerful than conversations and lessons, your own financial accountability will become a lifestyle that they can mirror in their lives.
At Boutique Advisers, we want what is best for you and your family. We understand that even the most financially responsible people need guidance and direction in making confident decisions around their finances which will help them achieve all that is important to them. We welcome the opportunity to meet with you and your children to provide financial planning advice and help ensure that you achieve your respective goals, purpose and legacy aspirations.
Karen Haarhoff is passionate about building long-term relationships with clients and working alongside them to achieve their financial and lifestyle goals. She enjoys helping clients make informed, confident decisions about their financial affairs and providing both clarity and structure around their financial affairs.