When we are children, our parents and teachers often teach us the skills needed in the present moment or to achieve our next personal or academic milestones. What often gets swept under the rug, are the skills that are essential in early adulthood, and unfortunately, these skills are rarely taught, and they are often expected to magically appear with “common sense”.
It has not gone unnoticed that most millennials typically lack financial literacy, according to data from the 2019 U.S. Financial Health Pulse Consumer Survey, only 24 percent of millennials are financially healthy, these statistics are likely derived from drastic increases in higher education fees as well as witnessing Gen X and boomers deal with the 2008 housing bubble crash and recession. The effects of such events normalised debt accumulation through the use of loans and credit cards. Another key contributor is the rise of social media and its exposure to unrealistic consumerism and the pressure of “keeping up with the Joneses”. It is an extremely concerning facade that is becoming the new normal, and millennials now run the risk of role-modeling such financial habits to younger generations... How can we help prevent this?
Although financial literacy has made its way into the UK PSHE curriculum, it is most effective when small skills and habits are learned from a young age. With that said, we would like to share with you our top tips to raising a more financially responsible child!
1. Pocket Money
This one seems like a common tip, but often, the pocket money strategy is not carried out properly, and therefore loses its benefits and effectiveness. Decide an appropriate budget for yourself and commit to giving this to your child weekly or biweekly. You must explain to your child that the pocket money is their responsibility and they can spend it how they please, but they must be able to make it last until the next pocket money day. Where parents tend to go wrong is continuing to give the child money on top of their pocket money. If you are on a day out, there is nothing wrong with treating your child to an ice-cream, but make sure they know it is a treat and if they still want a something else afterwards, you should reinforce that they can if they use their own pocket money to do so. Once a child becomes a teen, you can also give them more pocket money responsibility by adding more to their allowance, but making them responsible for paying their own school lunch out of it. Pocket money is a great way to help children budget and prioritise their spending.
2. Opening a Savings Account
Go to your local bank and open your child a savings account. Before you go, be sure to explain the basic functions of what a savings account is to your child and make them aware that this a big deal, this will give them a sense of responsibility and independence. A savings account is useful if your child receives cash gifts on special occasions and provides them with an opportunity to think about if they should save for a more expensive item, as opposed to potentially spending the money carelessly as soon as they get it. It is not uncommon for children to begin enjoying watching their savings accumulate, this results in more thoughtful spending. Some children may even wish to add their leftover pocket money to their savings accounts too!
3. Open up a dialogue
In some cases, money can be seen as a taboo subject as it can trigger psychological factors such as shame, power, and even guilt. However, when spoken about with a wise and informative agenda, the subject is interesting, insightful, and essential. Asking your child how much money they have saved, reflecting on what they spent their money on and what they plan to do with it moving forward, will not only encourage your child to look after their money, but it may make them feel comfortable to speak with you if they have any issues with their money now or in their futures. This hurdle can be a learning opportunity for them to reflect and for you to guide.
4. Pennies Make Pounds – Piggy Banks!
I have seen children (usually teenagers) leave loose change at the cashier or even throw it away. Encouraging children to use a piggy bank from a young age is another way to help them see that consistency compounds!
5. A Taste of the Real World
If your child asks you for treat money, ask them what it is for before handing it over, this will help the child reflect on whether or not they really need it. If you think what they are asking for is reasonable, ask them to do a chore or a task to receive the reward. This technique helps children understand that we must work for additional things that we want.
6. Grocery Shopping
Having your child join you at the grocery store is a way to expose them to price comparison, mindful spending, and bargain hunting. It is true that when we are younger we often adopt and model the behaviours and the mindset of our parents, so make sure your spending habits are role-model material!
These tips are a starting point for raising your child to become more financially responsible. These tips can be seen as more of a foundation for responsibility and attitudes towards money, but it is important to note that as your child develops, it is useful that they have a more explicit understanding of financial risks, budgeting, and safe investment strategies.