Most people learn more about money skills from their parents than from any other source. So, your kids will be learning about money from watching and listening to you. In the first part, we looked at tips for younger children and here are some top tips for older children.
Real World Situations
As your Child gets older, a coin jar or simple games may become less inspiring and they will likely be more stimulated by real world financial situations. Start to bring them to the bank with you and have them understand why you are going there. It is a good idea to start to talk openly about the family finances, not exact salaries, but the cost of holidays, pension savings and things of a general nature. Here are 3 top tips for older children:
1.Open a Savings Account
Going to the bank and making deposits is a great start to learning about saving. Although interest rates are low, the point is to regularly contribute to the account and save for a long-term goal. At most banks, a savings account can be opened for free for a minor. If children under 18 open an account at the bank their parents use, they may get a break on fees. However, some banks require account holders to maintain an average monthly balance or make automatic deposits to avoid fees.
2.Teach Them About Compound Interest
Saving money is a smart way to learn the algebraic lesson of compound interest. Money grows over time in a savings account, for example, and can be a good motivator to save. If you really want your children to see their money grow, have them invest in a mutual fund that should increase in value faster than a savings account. Warn them that mutual funds can drop in value, and go to your broker’s website to show them graphs of how mutual funds you own have done over the years. Remind them that their money is in a long race, not a short one.
3.Let Your Child Make Mistakes
Sometimes the best lesson comes from a poor decision, especially when your child is young and the financial loss won’t be so great.
When my colleagues son got his birthday and Christmas money last year, he rushed out and spent it without thinking. After spending most of it, he realized that he didn’t have enough to get the video game he wanted. He wished he had thought about it first before he spent it. But now, he saves up for the things he really wants and thinks before he spends.
Becoming Financially Independent
Becoming financially independent usually has two interpretations. Firstly, it is your child becoming financially independent from you as parents. Secondly, it is achieving financial independence to the point where you no longer have to work if you do not want to. The latter is an extensive subject so we will just consider the former.
If you think that the “Bank of Mum and Dad” will be closed for business once your child graduates and enters the world of work then think again. As of 2014, 59 percent of parents provide financial support to their adult children who are no longer at work. The “Chadult” generation has emerged over the last 20 years and parents on average now do not expect their children to become financially independent until the age of 38. If you want your child to become independent quicker, then follow these 3 top tips:
1.Set Specific Goals
Goals define what financial independence will look like for each of us. Goals, particularly specific goals written out with timetables, can motivate us to initiate and stick with the other keys to financial independence.
To build financial independence, your child will need to earn a reasonable return on their savings. A savings account alone is not enough. Invest in stocks, bonds, and other assets that involve an acceptable level of risk. Yes, there’s the risk of some loss of principal, but understand that investing is for long term goals that are at least five years away. When they are closer to reaching their goals, shift the invested funds into those lower earning but less risky savings accounts and money markets.
One of the big mistakes many investors make is waiting to invest until the market is really strong, and then bailing out when it sinks. In short, they buy high and sell low. Get in and stay in, and make adjustments if necessary. Avoid the temptation to dip into long term savings for short term pleasures, your child will thank you in the long run for your guidance!
Please note that beijingkids does not necessarily endorse the views presented in this article.
About William Frisby
William originally arrived in Beijing as a finance guy on a bicycle and will probably leave as a finance guy on a bicycle. He works for Premium Finance Group (PFG), a financial consultancy that has been established in China for over ten years. PFG offers clients no-nonsense, personalized advice and serves the whole of China from their Beijing and Shanghai offices. Services include international property, investment, insurance and financial planning. To contact William, email firstname.lastname@example.org.