Life lessons are not taught by teachers in school. Children will focus mainly on academia so, how to prepare for life is a focal point for parents only. But exactly what is a life lesson? In short, it’s when you learn a skill that will see you become self-sufficient and knowledgeable about how the world works. Things like relationship advice, choosing a partner wisely, planning to have a family, etc. It can also be little things such as showing your children how to dress formally, which would see them look presentable during a job interview or perhaps a date. Other life lessons will include things like organizational skills and educational advice. However, right at the top of the heap with regards to importance, is the life lesson of financial planning. Schools don’t teach children how to become fully independent with regard to money and banking. It’s up to you the parent to not only prepare to support your child financially but impart wisdom on how they can look after themselves, fiscally speaking.
Early lessons in savings
The simple but effective piggy bank should still be used to teach children about savings. It’s an old concept, but it’s still highly relevant for showing children the benefits of being patient with their money. However, to start off you need to give your children pocket money. It’s important that you don’t just give them ‘free’ money and base their weekly allowance on their behavior. Have they done their chores? Do they complete their homework on time?
Piggybank: The concept is to show children how the accumulation of their money, gives them more power and freedom. Each week they can put a few coins or notes in, and since the only way to get the money out is to break it, it instills patience. Children will want to hurry up and spend their money on toys and sweets, but sit down with them and explain how a large amount of money is better. Instead of only having sweets for a day or two, they can buy clothes and toys they want, which will last a lot longer. Rather than buying small items, they can buy larger and more useful things.
Child savings account
Savings accounts for children can earn high interests, which is why parents should open an account for their children as soon as they can. Don’t do everything for them, let them in on the process. Along the way to finally choosing a savings account, you will have numerous opportunities to explain the nuances to them. Since interest rates are the most enticing aspect of savings accounts, explain what interests rates are to your child. Look through the various options together. Sit at the dining table alongside each other and explore the different types of child savings accounts banks offer.
Banks will often use small freebies to lure children and parents into choosing their products. Explain to your children why banks do this. The smoke and mirrors technique is there to take your eyes off the small print. Teach your children to be savvy, only look for the details and examine them without being enticed by the smaller irrelevant things.
During the process, you will run into terms like ‘minimum balance’, ‘variable rates’, ‘annual percentage yield’ etc. Explain what these terms mean to your children so they can make the best decision. Some children’s savings accounts will have early access and others will not allow you to withdraw any of the balance until the child is 18.
Timeline for their future
In the midst of preparing for your child’s financial future, parents will be dealing with their own challenges. The more outgoing money, the less you have to invest in your children. Thus, parents need to get a grip on their debts and loans. The most typical kind of challenges will be paying off the mortgage, credit card debt and general waste in the weekly shopping. Creating a list of things you need to do in order to prepare for their risk-free financial future is going to help you visualize the challenges. You’ll need to plot their growth as a citizen, i.e. becoming an adult, going to university, buying a car or house, etc.
Up to 16: How much money do you want to put towards your children’s education. It’s at about 16 when children choose to go to college or perhaps take an apprenticeship. Look closely at the average costs of higher education and the options that are out there for vocational careers. At around 16 is also when they will begin to learn how to drive. Depending on your family’s life circumstances, will your child need a car of their own? These are the early steps and the foundations of supporting your child into becoming an adult.
Up to 18: When your child becomes 18, this is when a university fund comes in handy. But how will you save for it? Child trust funds are definitely something to look into as they are tax-free. Up to a threshold, the government cannot take a penny from this fund, and it normally provides a much more stable interest rate than a child savings account. If the amount accumulated in the account does go over a set amount, then it may become liable to being taxed. However, this can be offset by some CTFs offering a tax-free policy up to the age of 18. Which is perfect timing because that’s usually the age when teenagers go off to university. The general interest rate for a CTF is between 2-4% APY.
Working and living
After university, your child will need a little extra support to get on their feet. When they leave university they will be in debt if you didn’t fund their education. However, even if you did, this will leave them with the sum total of zero in their bank account. Or at least, this is usually the case. It’s wise to advise your child to work during their first and second years at university. This will give them some kind of breathing space, financially speaking. Yet, when they first find work they will need financial support to move out and find their own place. In such a scenario, you can become their safety net with regards to loans.
One option is a guarantor loan from Buddy loans, whereby a friend or a family member can act as a cushion for the loan applicant. You may borrow up to £10,000 for a period of 60 months. With a 41.6% fixed rate, you know just how much interest you’ll be paying back over the full length of the loan. This provides a lot of reassurance, and stability for your child. In any case, if your child is unable to pay the loan back, as the guarantor you can step in to make good on the payments. The good thing is, even someone with bad credit will be accepted as the safety net function gives the company confidence in the applicant. The loan is for anything, with no strings attached with regards to how you use it.
Be prudent in your actions
Saving for your child’s future is inherently, a long term game. You need to think about your actions now and how they will affect the prospects of your children when they are ready to live their own lives. So, not going on holiday when you know it would hurt the ability of your savings is something that you have to get used to. Enter into a whole new mindset about what saving actually means. It’s about sacrifice and living modestly so that you can pass on a better life for your children. It’s also highly recommended that you become more self-aware of your actions in your everyday shopping. Don’t spend too much money on your groceries if you can make savings and use discount vouchers cut out from newspapers.
Don’t take unnecessary risks such as gambling or speeding on the road. Your children will also learn from watching you. Imagine that you did enough saving for your child, but when they grew old enough to utilize the savings they didn’t know how to be fiscally responsible. All your hard work would be for nothing as fiscal discipline was not taught to your child from a young age. Make money management fun. Talk about the economy and general money management topics with your child every week. Make certain topics like saving, interest rates, buying homes and using money wisely as the norm in your household. Just getting children talking about money from a very young age will greatly benefit their attitude towards money when it comes time to fund their own way in the world.
Start saving now for your child’s future. Little by little, you will edge close to your goal. Introduce your children to the savings concept by giving them a piggy bank. Slowly but surely, they will realize the value of accumulated wealth. When it comes time for them to go to university, they can use their child savings account or perhaps their child trust fund, to pay for their course fees, rent, and food.