How to teach your children good money habits

This autumn, the first 18-year-olds whose families saved for them using the government’s Child Trust Fund (CTF) scheme will receive a windfall. But how can you teach them to make the right financial decisions? There will no doubt be some happy teenagers around the country over the coming months – […]

This autumn, the first 18-year-olds whose families saved for them using the government’s Child Trust Fund (CTF) scheme will receive a windfall. But how can you teach them to make the right financial decisions?

There will no doubt be some happy teenagers around the country over the coming months – but the amount the 2020 cohort receives will vary, depending on whether parents, relatives and friends have added to the savings pot over the years. In many cases, though, the sum they receive will be substantial, with a third of recipients getting £20,000.

Alex Price, director of financial planning at Charles Stanley Belfast, says that teaching children about money as early as possible will prepare them to make the best financial decisions when they are older – whether it is a substantial CTF fund or an inheritance in later life.

She says that simple steps taken now could help children to handle money well later – starting with showing them good financial habits yourself. “Children will often be influenced by their parents’ behaviours. So make sure you show them good habits from an early age, such as setting and sticking to budgets, saving for special items or events, and making money a regular topic of discussion,” she says.

Early money lessons

Alex says that, as well as modelling good habits yourselves and having financial conversations, involving children in simple financial decisions can help them to learn about money from a very young age. “Try and use notes and coins for your shopping sometimes instead of always using cards. Physically handling money and seeing it change hands can help teach children the value of money,” she says.

“Encourage children to save for something they really want, like a new bike or toy, rather than just giving it to them. Encourage them to save their pocket money or do odd jobs for money to earn the amount they need.”

She also suggests involving young children in simple household budgeting, such as shopping for school snacks. “By providing a monthly ‘snack’ allowance and letting them make their own purchase decisions, you give them first-hand experience of what it could feel like to overindulge at the start of the month and go without at the end.”

Decisions, decisions: Encourage saving over gifts

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Going further

For parents or grandparents who are investing for their children through a Child Trust Fund – or its successor, a Junior Isa – there are further steps that can be taken to help children to understand what they will be inheriting.

Clive Worlock, director of private clients at Charles Stanley, cites the example of one of his clients, Robert, who has set up a Junior Isa for his granddaughter. It contains the shares of companies that he hopes she’ll find it easy to connect with, such as Disney. “By using more familiar companies, he’ll be able to talk to his granddaughter about investing in a way she’ll understand, thus passing on more than just his money – his financial knowledge, which Robert and his family hugely value,” Clive says. 

Clive explains that clients like Robert use the services of an investment manager to ensure their wealth is structured in the most tax-efficient way to pass it on to children or grandchildren, as well as to help them have conversations about the future. “As well as passing on his money, Robert wants to pass on his values about hard work and responsibility, which are ideas that guide all our decisions,” he says.

Savings vehicles for younger people

For those teenagers who are about to turn 18 and gain control of their Child Trust Fund, there are a variety of structures that can help them to continue to grow their money if there is no immediate need for it.

Rory Menmuir, a financial planner at Charles Stanley Birmingham, says that transferring the CTF to a Lifetime Isa (which can be used as a pension or to buy a first home), is one good idea. “A Lifetime Isa is a flexible, affordable way to save and invest for your first home or later life. You can open one if you’re between 18 and 39 years old,” he explains.

“You can choose to save cash or invest in the stock market, and, as with other Isas, your money can grow free from UK tax. But the real benefit is a 25 per cent government bonus worth up to £1,000 a year.”

Other options include a standard Isa, in which the money continues to grow tax-free, or transferring the money into a self-invested personal pension (SIPP).

It’s good to talk

Whatever your family’s goals, and however much your teenager has learned about money throughout his or her childhood, it is vital to keep talking to them about money and about their goals and aspirations as they get older and receive control over their windfall.

To start the conversation on how to pass your money and experience down to the next generation, get in touch with a financial planner today. A financial planner will work with you to establish your financial goals and help you to put the right investment plan in place, in order to achieve them.

It’s time to talk about money

For more details call Charles Stanley on 020 4502 7397 or visit charles-stanley.co.uk to find information on how an adviser can help you to talk about money.

Alternatively, enter your contact details below to book a meeting or speak with an adviser.

The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.

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