Learning how to manage your money effectively is a key life skill. If you want to build your wealth, it’s important to start from a solid foundation of financial sense.
While you will already have these necessary skills, you may have loved ones who don’t. According to the National Student Money Survey, 71% of respondents said they wish that they’d received better financial education when they were younger.
If you want your loved ones to know how to manage money once they’re old enough to fly the nest, there are a few things you can do to help them. Here are three useful financial lessons to teach them.
1. The importance of developing good saving habits
If you want to instil good financial habits, one of the most important lessons that you can teach your younger relatives is the importance of saving money for a rainy day.
While something as simple as a piggy bank can be a great way to introduce young children to the concept, when they get a bit older, you may also want to consider something a bit more sophisticated.
Setting up a junior savings account on behalf of your child can be a great way to encourage good habits and build their financial knowledge. You could also help them to pick an account, which would give you an opportunity to explain aspects of saving such as what the interest rate is. Junior savings accounts tend to attract a better rate than those for adults and they could monitor the rate and let you know if it changes.
Once it’s set up, it can be a good idea to talk to them about how much of their pocket money they’d like to save each month and how much is available to spend.
Once they get a bit older and get their own phone, you may want to introduce them to apps such as RoosterMoney, which can teach them more about managing their money. This allows them to transfer pocket money and set savings goals so they can see the benefits and rewards of saving.
2. How to budget effectively
Another useful skill to teach younger family members is how to budget effectively, as this is one of the cornerstones of sensible financial planning.
This can also be particularly useful if your loved ones may one day go to university. According to the National Student Money Survey, 1 in 10 of the respondents said they had never budgeted before leaving home.
Many of us have experienced how growing children (and especially teenagers) are never full, which is why food can be one of the easiest ways to teach lessons about budgeting.
One example is to make a snack list for your weekly shop and letting your younger relatives pick which items they want within a budget. You can also use this method to encourage healthy eating by making a piece of fruit cheaper and junk food more expensive.
When they get a bit older, you can also get them involved in meal planning and preparation. Not only is knowing how to cook a useful skill for any child to learn, but it can also teach them important lessons about budgeting and substitution.
3. How overdrafts and credit work
As your loved ones get a bit older, you may want to start teaching them more complicated lessons about managing their money. Explaining to them about overdrafts and credit can be useful, as it may prevent them making costly mistakes.
It can be easy, especially for younger people, to view the overdraft as essentially free money. This is particularly true for students, who often benefit from 0% interest on their overdrafts.
Of course, this isn’t the case and that’s why it’s important to teach your loved ones that an overdraft should only be relied upon as a last resort. If they fall too deep into their overdrafts, they may rack up hefty charges.
Another important lesson can be how to use credit effectively. While many young adults don’t feel the need to get a credit card as soon as they are eligible, it can still be helpful for them to know more about how they work.
Credit can be useful, such as when making large purchases, it can also have potential downsides too. Getting too deep into debt is an obvious one but relying on credit can also leave them open to one major problem – the risk of missing payments.
If they do, it could harm their credit score. This would seriously impact their financial wellbeing and could make it more difficult to purchase a home later in life.
Sitting down with your loved ones and explaining to them the risks of relying on credit can help them avoid running into problems later on.
No matter what stage of life you’re at, there are always financial lessons that you can learn. If you have questions about your or your family’s financial affairs, get in touch. Please email firstname.lastname@example.org or call us on 0117 214 0870.Back to Our Insights