Learning About Money Can Make You £70,000 Richer in Retirement

📺 Did you know that most of our money habits are set by age 7?

According to a study, 40% of people who didn’t receive financial education have no savings at all. On the other hand, people who did receive financial education as a child could be £70,000 richer in retirement.

Teaching financial responsibility early creates a foundation for a lifetime of good money habits. 
In this video, we'll cover six things I am teaching my kids about money and why it's crucial to be brave and make it fun. 

“Learning how to delay gratification as children helps create financially responsible and self-sufficient adults because they know how to make educated financial decisions and decide whether they should buy that new toy and whether it’ll be worth it after they’ve taken time to think about it.”

Be conscious of the exAMPLE YOU SET

  • Children learn by example. If you constantly overspend and make poor financial decisions, your children may adopt the same habits. 

  • Similarly, if you consistently model habits like saving, budgeting and smart spending, they will follow your lead. 

  • For example, when you take your kids to the supermarket - take some time beforehand to write a list together of the things you want to buy and set a budget for it.

  • When you’re there, arm yourself with patience and ask them to browse the aisles and compare the prices of the items they’re after. Resist any temptation to buy any extras, treats or last minute and stick to the plan. Trust me they’ll find a lot of interesting things to buy!

  • Encourage them to think about why some items might be pricier than others and ask them if they think it’s worth spending that extra money? Or should they just save it to buy a bigger purchase another week?

Explain the idea of ‘need versus want’

  • It's important to understand the difference between needs and wants because we have to make choices about how we use our resources, like our time and money. We need to make sure we take care of our needs first, like eating healthy food and getting enough sleep, before we spend time and money on our wants.

  • For example, needs are food, water, shelter, clothing whereas wants are toys, video games, or new trendy gadgets! To be honest, we buy way too much stuff that we actually need, and it's a great opportunity to discuss sustainability, the impact on the planet and how to reduce consumerism.

  • Kids are even more sensible to these issues, and it’s a good reminder of the emergency of climate change and the impact of our spending choices.

Delayed Gratification

  • You may have heard of the marshmallow test - it is an experiment that tests young children's ability to delay gratification by offering them a marshmallow and a promise of a second marshmallow if they wait. 

  • The test has shown that the ability to delay gratification can lead to greater success in the long run. Therefore, resisting the urge for immediate gratification and waiting for something better in the future can be beneficial for achieving our goals.

  • Sometimes, it's hard to wait for the things we want, but if we can learn to delay gratification and be patient, it can help us achieve our goals and be more successful in the long run.

  • An example of delayed gratification with money for kids could be choosing to save their allowance instead of spending it right away, so that they can buy something they really want in the future. This means waiting to spend their money on something fun until they have saved enough to buy it, which can help them learn to be patient and make smart choices with their money.

  • It’s a matter of sitting down with your children to create a list of what they want to achieve with their pocket money or savings accounts. Set a realistic goal for them to save by the end of the year, and potentially invest with them or on their behalf. Review monthly bank statements with your children.

  • Learning how to delay gratification as children helps create financially responsible and self-sufficient adults because they know how to make educated financial decisions and decide whether they should buy that new toy and whether it’ll be worth it after they’ve taken time to think about it. 

Let them learn by doing

  • Pocket money can also be a helpful way to teach them good habits. You can help children create a budget for their pocket money - whether you do this via a journal or an app. This can be a great way to teach children about tracking expenses, setting financial goals, and planning for the future.

  • By giving your kids some money, however little, they can begin to make their own decisions about how to spend it. Having a bank card or a prepaid card can also help children learn how banking works and how to save money. 

  • What Louise Hill told me in an episode of The Wallet podcast is that: “It's better to make a 20 pound mistake at age seven than a 2,000 pound mistake aged 27”. 

  • If you let them make the decisions on how they spend that, it is incredible how much they learn. Whether they decide they're going to spend it all on sweets, or they're going to save it up for a period of time and buy a magazine, all of that is teaching them to be confident in making decisions around money. 

  • If you give your child money and they blow it all, and then tomorrow they can't do something they wanted to do because they spent all their money — that's tough, but it's a great lesson for the future!

TALK ABOUT MONEY AT HOME

  • Children often get different amounts of pocket money, or none at all — the main thing here is to have open conversations about money at home in an age appropriate way.

  • If you can explain to them and involve them in some of the decisions about spending money, it will be incredibly empowering. 

  • You don’t have to teach them everything they’re ever going to need to know, as financial literacy is something we all build upon as we get older and more experienced. 

  • Saving, for example, is an important financial concept that should be discussed at home. Encouraging children to save from an early age can help them develop a healthy savings habit, which benefits them in the long run. 

  • It’s a good idea to aim to teach children that the things they want come at a cost and that money needs to be earned through work. 

  • So sometimes, we need to buy less presents so that we can save up and go for a fun holiday. It’s all about understanding delayed gratification - which is also quite difficult as adults

  • Through everyday conversations, children can gain practical knowledge about money management and develop good financial habits that will last a lifetime.

PRACTICE ALTRUISM

  • Teaching children altruism, or the act of helping others without expecting anything in return, can help them develop empathy, kindness, and a sense of community. Giving money to others in need can also teach children about the importance of generosity and compassion.

  • By learning to give to others, children can develop a sense of responsibility to make the world a better place and understand the value of helping those who may be less fortunate. 

  • Additionally, teaching children about altruism and giving money can also help them appreciate what they have and feel more grateful for the things they may take for granted.

  • In an experiment conducted by the University of California, 74 children around four years old were tested for their altruistic behaviour. The study revealed that children from less affluent families exhibited more altruistic behaviour than those from more affluent families. The researchers found that being generous may benefit the health of less affluent children in the long run compared to their more affluent peers.

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📚RESOURCES:

ArticlesVeronica MorozovaMoney Stories, Money Psychology, YoutubeComment