As you gather with your loved ones this festive season, perhaps one of the most impactful gifts you could give your children or grandchildren is a lesson in financial literacy.
A survey reported by FTAdviser found that 55% of people aged between 14 and 17 wish they had started learning about money earlier in life – ideally in primary school.
Encouragingly, the same study revealed that financial conversations are becoming more common at home, with 2.9 million young people discussing topics around the dinner table such as:
- Saving (59%)
- Budgeting (49%)
- The cost of bills (47%).
Since you’ll likely all be gathered and sharing moments over the festive season, it could offer a unique opportunity to impart some practical financial lessons to your children or grandchildren.
By doing so, you could instil healthy money habits early in their life that could shape their financial decisions for years to come. Continue reading to discover five of these helpful lessons.
1. How to manage a regular income
Understanding the concept of a regular income is the foundation of a child or grandchild’s financial literacy.
If they currently don’t receive an income, you could introduce this idea by offering pocket money in exchange for completing household tasks.
Then, gradually increasing the amount they earn based on the complexity or effort involved could reinforce the vital relationship between work and earnings. Even small amounts could help them learn that money has to be earned.
As they grow older, you might want to encourage them to get a part-time job. Earning their own income – even a modest amount – could help them foster financial independence and responsibility while giving them experience with managing money.
2. The importance of saving
Once your child or grandchild understands the basics of earning, you could naturally transition to teaching them about the value of saving.
For younger children, you could explain saving through tools like piggy banks. By encouraging them to save for something they desire, such as a toy or game, you could illustrate how patience and planning allows them to reach seemingly unattainable goals.
If your children or grandchildren are slightly older, you could introduce them to other saving tools, namely a Junior ISA (JISA). While they won’t be able to control a JISA until they turn 16 or access the funds until they’re 18, it could allow them to learn about the concept of managing their wealth.
Similarly, utilising a Junior self-invested personal pension (SIPP) or a stakeholder pension for your child or grandchild could help prepare them for the future while teaching them invaluable lessons about long-term saving.
3. The power of compounding
The earlier your children or grandchildren understand the benefits of compounding interest and returns, the greater the potential effects on their financial decisions in the future. Albert Einstein called it the “eighth wonder of the world” for a reason, after all.
While this topic can be complex for younger people to understand, you could make it more engaging through interactive lessons.
For instance, you could do so in the form of a game, such as the “bank of sweets”. Start by giving your child a small number of their favourite sweets and encourage them to deposit them in a “bank”.
Then, if they wait before eating their treats, periodically add more sweets as “interest” to demonstrate how delayed gratification could lead to better rewards in the long run.
Make sure you use this lesson to explain that even small and regular contributions to a savings account could grow significantly over time.
4. The considerations and benefits of debt
For most, debt is an inevitable part of life. As such, it’s worth teaching your younger loved ones the importance of managing it responsibly.
You could begin by explaining the difference between “good” and “bad” debt.
Good debt, such as a mortgage or a student loan, could be an investment in their future. For example, a mortgage allows them to own a home that may appreciate in value.
Conversely, bad debt could arise from borrowing beyond their means, often for non-essential items such as expensive clothing.
In preparation for the Christmas period, you could also discuss the risks of “buy now, pay later” schemes. While these services might seem appealing, they often come with high interest rates and the potential to snowball into unmanageable debt.
Moreover, you may want to encourage children and grandchildren to differentiate between their “wants” and “needs”. Before they make a purchase, ask them to consider whether the item is worth the cost and whether they really need it.
This could help them develop a much more responsible and measured approach to spending.
5. The details of their payslips
When your child or grandchild receives their first salary payment, only to find that it’s less than they expected, they might be shocked.
As such, taking the time to explain payslips in advance could help them avoid any nasty surprises later down the line.
You could do so by showing them one of your payslips as an example. Make sure to walk them through each aspect, namely:
- The relationship between tax codes and the Personal Allowance
- Different rates of taxation
- What National Insurance is, and how it’s charged.
This could also be the perfect opportunity to introduce the concept of employer and employee pension contributions.
Explaining how these deductions work and the long-term benefits of saving into a pension could open the door to wider conversations about budgeting, managing their pay, and planning for future goals.
Get in touch
As you help your younger loved ones develop their money skills, don’t forget to prioritise your own financial wellbeing.
To find out how we can support you, please use our search function to find your nearest Verso office, email us at contact@versowm.com, or call 020 7380 3300.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
