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Financial know-how is one of the most important things you can teach your children to help them get ahead in life. There may be some guidance provided at school, but financial education begins at home. A recent Cambridge University study showed that if a child hasn’t learned good habits by the age of seven, it could be too late to introduce them effectively.
How do you introduce a child to the world of finance? Try our five suggestions below:
Teach them how to open a bank account and check their statements
As soon as your child is old enough to understand, open a children’s account with them. Most banks have special accounts for under 18s with incentives for them to save and receive awards. You can explain the application process and show them how to fill in the forms (dull but a necessary skill!).
When they receive a statement it’s also a good idea to sit down with them and go through their spending and check off receipts against the items on their statements.
Show them how to save money
Children can be encouraged to save from a young age. One idea you could use is to have two jars, one labelled “spend” and the other “save”. When your child receives pocket money or other cash, split it equally between these two jars.
Your son or daughter should set a goal for the savings jar, perhaps for a toy or fun experience. Don’t make it too expensive as you want to set them up for success and teach them that saving is a rewarding experience.
If you want to teach them about charitable giving you could add a “sharing” jar and put a percentage of their money into this pot as well.
Teach them how difficult it is to make money
Children get used to relying on their parents for everything but you need to help them to understand that money does indeed not grow on trees.
If you give your children pocket money then you could pay them a basic rate with additional sums for any chores they complete. This is a good way of teaching them the relationship between work and money so they don’t take anything for granted.
Show them how money grows
Open up a junior tax free account with your child. This will be in the form of a Roth IRA in the U.S. or a Junior ISA in the UK. Teach them about the joys of compound interest: how they can earn money on their savings and past interest as well.
This is a good opportunity to discuss different types of investment and explain a bit about investment risk. Have a discussion about the different risk attaching to keeping your money in a savings account or buying stock or bonds instead.
Give them the investment bug
At some point in their lives your children will be involved with investments. This may take the form of their company pension or maybe they will have portfolios of their own to manage. They may not have the benefit of risk management software such as that provided by Sungard.com/APT but they can learn the basics from a young age.
The best way to gain an understanding of the world of investments is to get involved. You could give your child the opportunity to pick some stocks from a choice of five and then monitor the progress of their investments. Whether they make or lose money, they will learn valuable skills that will give them an advantage for life.
There are also numerous games and apps available to teach you about investing and business without risking any real money. Also, the old games are often the best, encouraging your child to play chess or poker will teach them lots of valuable skills such as learning about uncertainty and weighing up risk.
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