What are good money habits? Do you feel you manage your finances well? What are you teaching your children in this regard?
One of the responsibilities that parents have when raising their children is to teach them how to manage their finances. While you may be in control of spending and responsible for purchases when they are young, there will come a time where they will be financially independent. This is why it is imperative that they form a positive relationship with money, and understand the importance of wise spending and saving habits. This is something that can be instilled in them from a young age and can affect the ways in which they view money even into adulthood.
My daughter is heading off to university this year and she will be fully in control of her own spending for the first time. It’s quite a scary prospect, but hopefully, I have helped her develop money habits that will help her, and she will be fine when the time comes.
Junior ISAs (for junior ISA transfers the basics, click the link) can be a great way to teach your child from a young age how savings work. Getting them an ISA account will allow you to save up to £9000 a year for your child, without facing any tax deductions – this money will also accrue interest. Since this account will become theirs from the age of 16, and withdrawals can be made from 18, it is vital that they understand the importance of putting money aside for purchases or simply if it is needed, otherwise there is a risk that this long-term investment will not be spent wisely.
Teaching your child how to budget is also crucial for them to be able to fend for themselves once they become independent. Just because money is there, does not mean that it must be spent, especially not on frivolous items. Allowing your child an insight into your own monthly budget, as well as outgoing costs, can give some real-world knowledge on living costs, as well as the best ways to ensure that you make ends meet each month. When they are able to understand that general living and luxuries they might take for granted, such as hot water, heating, or even excursions, all come with a cost, they may be more inclined to budget their own money too.
While pocket money may be seen as a luxury that allows children to buy small items on a weekly or monthly basis, it can also be used as a means to teach the importance of saving. Rather than always buying expensive items for your child, you could allow them to use their own money instead. For larger items, such as games consoles, this would not be immediately affordable meaning that, if they are determined to have the item, they must then forego any impulsive spending and instead accrue their weekly money until they have enough, much like you may need to if you want to purchase something.
Regular saving is one of the best money habits you can acquire – if you can put aside just a little bit of your income each month, then you will have a fund for a rainy day or for an indulgence now and again
Instilling these positive saving and spending money habits from a young age can help to reduce the likelihood of your child facing financial difficulty when they are older. As much as you would like to help, they cannot rely on the bank of mum and dad forever, so while these lessons may not be enjoyable for them, they can help them to stand on their own two feet as adults.
Take a look at these other posts about finances, and good habits in general: