5 crucial financial lessons that could help your teenagers make better money decisions
Learning about money and finances early in life can help children to form sensible money habits that support them throughout their lives.
Yet statistics reveal a gap in financial education for many younger people. The Independent reveals that only 47% of children and teenagers aged 7 to 17 have received a meaningful financial education, translating to roughly 5.4 million children across the UK who don’t have the money skills they will need in adulthood.
The good news is that you can play a role in changing this. By teaching your children some basic financial lessons, you could help them navigate the complexities of money management, which could eventually enable them to achieve their long-term goals.
With that in mind, continue reading to discover five crucial financial lessons that could help your teenagers make better money decisions, both now and later in their lives.
1. How to create a budget
A budget is the cornerstone of good financial health, as tracking your income and expenditure can help you to progress towards your long-term goals.
This makes it an invaluable financial lesson to impart to your children.
You could start by encouraging your teenager to assess any income they receive. This could come from pocket money for completing tasks around the house or earnings from a part-time job.
Next, you can teach them the importance of tracking their spending habits, emphasising the difference between “needs” – essentials like food and bills – and “wants” – desires, such as clothes, video games, or going out.
Of course, different people handle budgeting information in varied ways. As such, it may be helpful to try out budgeting apps, spreadsheets, or even a simple notebook – the key is finding a system that works for them.
To cement these lessons regarding budgeting, you might want to include your teenage children in conversations about your own household budget.
Not only could this help them cultivate responsible habits later in life, but it might also allow them to foster a sense of independence and self-reliance.
2. The importance of saving
After building on the foundations of budgeting, this might naturally lead to the concept of saving.
Teaching your children the importance of planning for the future and putting money aside can encourage them to develop habits that will benefit them in the future.
One way you could impart this lesson is by encouraging them to choose a specific purchase they have in mind, such as a new console or their first car, and find out how much it would cost them to buy. Then, decide on a manageable amount that they could save towards the purchase every week or month, so that you can calculate how long it may take until they have saved enough to achieve their goal.
This activity could help them understand that even things that seem expensive in relation to the money they currently have are attainable with some preparation and saving.
Depending on your circumstances, if you haven’t already done so, this could be the ideal time to open a savings account for your child or grandchild, such as a Junior ISA (JISA).
While they might not be able to control their JISA until they reach age 16, and typically can’t access the wealth within until they’re 18, encouraging them to save money in their own account could give them a sense of ownership over their wealth.
3. The power of compound interest
Compound interest can be a challenging concept to understand, so the earlier you instil this lesson in your children, the better. Teaching them that “interest on interest” can boost their long-term savings is a great lesson.
You could do this in the form of a thought experiment – ask them if they’d rather have one penny that accumulates and doubles every day for 30 days, or £1 million right now.
Once they’ve made their (perhaps predictable) choice, you can work through the maths together until you reach day 30. This will reveal that the one penny has turned into £5,368,709.12 – over five times more than the initial £1 million offer thanks to the power of compounding.
You might also want to take this opportunity to showcase your personal experiences with compounding interest, perhaps by demonstrating how your savings have grown over time.
Showing them how leaving their savings untouched can have a multiplying effect can be powerful. This could ensure that your children are more likely to ignore the desire for instant gratification, making them more eager to save both now and in the future.
4. The dangers (and benefits) of debt
Using credit cards and taking on other forms of debt can be a double-edged sword. So, it’s vital your child understands that debt can either be debilitating or a helpful tool depending on how they use it.
You could start by educating them about their credit score. Ensure they know that borrowing money and repaying it promptly allows them to build their score, demonstrating their ability to manage debt effectively.
This could mean they find it far easier to obtain a mortgage or other credit later in life, and they might receive more competitive interest rates on their borrowing.
Though, it’s essential to emphasise that uncontrolled credit card spending can quickly snowball, leading to a cycle of debt.
So, you could teach them the importance of repaying their bills on time to avoid excessive interest charges, and only spending what they can afford to pay in the first place.
5. How to spot financial scams
Unfortunately, the world is full of people constantly developing new ways to separate you from your wealth. If your child falls victim to a financial scam, this could considerably hamper their progress towards their long-term goals and negatively affect their financial and emotional wellbeing.
As such, it’s vital to highlight the red flags they should be aware of, such as:
- Unsolicited calls regarding their wealth
- Investment opportunities that seem too good to be true
- Unregulated individuals or firms.
Since your children might be more likely to use social media, this could also be the perfect time to explain that scammers are increasingly using these platforms to target younger generations.
Even if they don’t directly interact with scammers on social media, it’s worth ensuring they know not to immediately take financial advice at face value from people seemingly living luxurious lifestyles.
Get in touch
At Logic, we can help you reinforce essential financial lessons with your children. We can also work with your adult children to help them to understand the value of working with a financial planner.
Please email us at info@logicfinancialservices.co.uk or check with your adviser to find out more.
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.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.