Sunday 22 April 2018

Let's teach the children the ABCs of managing money

Making savings
Making savings

Ross Curran

It is only a matter of days before children around the country start to head back to school.

For those with young children, it is worth taking the time to talk to them about financial planning before they do so. This will help make them responsible for their own financial goals - even if it's just a magazine or cheap toy.

The most important lesson for any child is how to buy what they want from the money in their budget. Many children today go through their formative years without this understanding, and studies have shown that this has significant impact in later years. If you're given a lump sum of money as a child, and no one teaches you what to do with it, you'll grow up thinking it's all meant to be spent.

Children as young as three can start receiving pocket money and this is where you can teach them the idea of saving and budgeting. A reasonable sum of pocket money is between €2 and €5 a week, increasing in line with age - up to around twelve. A very useful approach is to pay this pocket money in loose change rather than a single coin or note, and to have three clear jars as piggy banks. These jars are for "quick cash", "long term savings" and "charity".

When the pocket money is paid out, sit with your child and let them distribute the money across the jars as they wish, though some guidance towards a 40/30/30 split might be appropriate.

Of course for budgeting to work, parents must be as disciplined as children. There's not much point in having them save for something if you continue to pay for everything yourself.

Charity is an important part of life, but the concept may take some getting used to for younger children. The easiest way to help them understand why it's so important is to first involve them in a way that they see material difference, such as food and toy banks.

Once they understand the motive behind charitable donations, some time should be spent deciding who they should donate to. Make donating a regular occurrence if possible, even with a small amount.

Assuming you have worked with your child to teach them the concept of saving, by around age seven or eight, they should be ready for the real thing. It should be possible to create a simple current account for them with most institutions, perhaps with a savings account attached.

From age 11 on, you should even be able to explain the concept of investing. Find companies or funds that would be of interest to your child and purchase a small amount of shares regularly.

One of the best things you can do for an older teenager is to motivate them to save. A customer once explained how his father had approached him at the age of 16 and told him that he'd been saving his children's allowance for a number of years. The total value of those saved allowances at that stage was €10,000.

His father said that he would be willing to give this fund, no questions asked, to him at the age 21 - but only if he was able to continue saving the same amount (€130 a month) for another five years. If not, the savings would be used solely for educational expenses at university.

My client accepted the "challenge'"and over the next five years saved diligently until he was able to claim the full amount.

Ross Curran is the managing director of Curran Financial Services

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