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Preparing the next generation to engage with their finances

Planning & protection

10 October 2023

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John McLaren

John McLaren, one of Fairstone’s expert financial advisers, encourages families to lay strong foundations for financial literacy with their children by being open and positive about managing money.

Passing on the benefit of your experience to your children or grandchildren is crucial for their future success. However, financial planning can be complex, and even the most knowledgeable individuals may need help.

Breaking down barriers around talking about family wealth takes time and patience. It requires ongoing conversations and a willingness to address any fears or concerns that may arise. By starting early and progressively educating the younger generations, families can establish a foundation of knowledge and create a legacy of open communication and responsible wealth management.

It is essential to encourage younger family members to engage with their finances from an early age. These tips can help lay a strong foundation for money management and financial literacy in the next generation.

 

1. Start sooner rather than later

Begin conversations about money when children are preschool or primary school age. Teach them basic concepts such as saving, spending and the value of money. As they age, introduce more complex ideas like budgeting, investing, responsible credit use and philanthropy.

 

2. Share stories and values

Discuss the family’s history, values and journey to wealth accumulation. Sharing stories and personal experiences can help younger generations understand the importance of responsible wealth management and its associated values.

 

3. Focus on what interests them

Children learn through observation, play and experimentation. Find opportunities to engage them in money-related topics based on their interests. For example, if they love playing Minecraft, use it to teach them about budgeting and earning virtual money.

 

4. Identify personal goals and priorities

Increase their responsibility as they get older by providing pocket money or an allowance. Encourage them to make spending decisions based on individual goals and priorities. It’s okay to acknowledge disappointment when they can’t have everything they want.

 

5. Gradually disclose information

Start by sharing lower-level concepts and provide more detail as the younger generations grow older and demonstrate a greater understanding and maturity. This will help prevent overwhelming them with information while allowing them to develop a solid foundation of knowledge.

 

6. Learning from mistakes

Allow children to make and learn from age-appropriate mistakes. Minor errors now can prevent bigger ones in the future. Help them reflect on their decisions and find ways to do things differently next time.

 

7. Have honest and age-appropriate conversations

Encourage open and honest communication within the family. Make it clear that discussing family wealth is not taboo and that everyone’s perspectives and opinions are valued. Ensure they understand the family’s financial situation is not their fault or responsibility.

 

8. Approaching financial challenges

Children pick up on their parent’s emotions. Evaluate your feelings before discussing financial matters with children. Seek support from a friend or family member if needed. Show them how to approach economic challenges with a proactive mindset.

 

9. Set boundaries around money

Money should not be used to control family dynamics. Avoid overpromising or overindulging children’s wants. Help them appreciate non-materialistic things like shared experiences and relationships. Set boundaries around money and explain the reasons behind them.

 

10. Teach simple money principles

Help children to understand simple money principles, such as the importance of compound interest and its long-term effect on investments and debt or budgeting and the need to spend less than your net income in order to save. This will help teach them the value of planning ahead and begin to introduce concepts such as how factors including time, interest, tax, income and expenses can all influence personal finances.

 

Helping the next generation

Our financial experts are always on hand to support you with financial advice. If you want to make an investment that grows alongside your child, get in touch. Alternatively, sign up to our newsletter to stay up to date with our latest news and expert insights.

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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

YOUR OWN PERSONAL CIRCUMSTANCES, INCLUDING WHERE YOU LIVE IN THE UK, WILL HAVE AN IMPACT ON THE TAX YOU PAY. LAWS AND TAX RULES MAY CHANGE IN THE FUTURE.

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