At almost every event in the financial services industry, mention is made of the huge transfer of wealth between generations. A projected 1$18.3 trillion in wealth is expected to be transferred globally by 2030, the largest intergenerational transfer of assets in history.
1 Vanguard – Navigating the great wealth transfer.
In this article we briefly discuss how our children can learn to build a good relationship with money and not repeat the mistakes of the past, preparing them from a young age with the know-how to make independent financial decisions.
3 National Endowment for Financial Education (NEFE) – “The Importance of Financial Literacy in the Home. This resource offers an in- depth look at why financial education should start early, providing research and practical advice.”
Financial literacy goes beyond just managing money. It is about confidence, independence and understanding the economic forces that shape our world. By introducing financial conversations early, we can equip our children with the skills to navigate an increasingly complex financial landscape.
Financial education does not need to be complex, nor does it need to be a series of formal discussions, it can be integrated into everyday conversations.
Investing is a broad and sometimes overwhelming topic that can take many years to understand, so it is important to introduce the topic with your children early. But where do you start when it comes to teaching your child about investing?
Children are more than capable of understanding the concepts behind investments and do their own investing — if only they are taught. If you are unsure of where and how to begin, we suggest that from day one, you get practical by opening a small investment, such as a tax-free savings account (TFSA), for your child. This will allow both of you to track and monitor the investment. By monitoring the investment online, as they get older, your child will see how values change over time and in this way, they will get used to the frequent ups and downs in markets, while understanding and practically observing the impact of compound interest over time. They will also come to realise that consistency is what matters most in investments.
One of the easiest ways to teach children about money is through real-life examples. Some of the most impactful lessons happen naturally during everyday routines and often stick longer than a one-time conversation or lecture. This may involve going to the local supermarket, discussing how much things cost and how it fits into the budget. Also, show your children their savings on a banking app to make the invisible nature of digital money more understandable. This help children to connect the concepts with their real-life experiences.
Allow children to have a say in their own financial decisions, even those on a small scale can have a big impact. While parental guidance is essential, children should be given opportunities to make their own financial decisions within a controlled environment. By allowing them to manage their pocket money or earnings from small jobs, they learn valuable lessons about budgeting, prioritising expenses, and evaluating purchases. They also learn from their mistakes, learn to evaluate options, weigh consequences, and navigate challenges.
Teaching children about money and finances might not be the first thing that comes to mind when planning lessons or family activities. Financial literacy for children is a life skill as crucial as reading, writing, or maths. By empowering children with a solid understanding of money from a young age, we help them develop the confidence to make informed financial decisions on how they SPEND and SAVE their money. You can use money-themed games like Monopoly to teach earning, spending, and saving - and any wrongdoing may land you up in jail. Helping children at a young age to set financial goals - be it saving for a new laptop or running shoes - can teach them the value of patience and delayed gratification.
Starting these conversations is not always easy. We found that the key is consistency and honesty. When you are open about money, even if it is to admit that you do not have all the answers, it creates an environment where children feel comfortable asking questions and discussing their own thoughts about finances. Additionally, we can also learn together. We need to break our stigmas about money - shift away from seeing money as a source of fear - to allow us to approach the subject matter with a clean slate.
As parents we know that we have a role in shaping our children’s financial future. By being honest about your own journey and creating a supportive environment is a great opportunity to connect with your children on a deeper level and help them to navigate the investment landscape - learning and gaining knowledge. Starting the conversation about money early, when your children are young, curious, and eager to learn, can only help them to make better financial decisions as they grow older and when wealth is eventually transferred.
University of Cambridge – "Financial Literacy and its Impact on Adult Life". The study highlights how early financial education correlates with better financial outcomes later in life. Cambridge Study on Financial Literacy.
Journal of Financial Counseling and Planning – "Parental Influence on Financial Literacy in Children". This academic paper explores the impact of parental financial discussions on children’s financial behaviours. Journal of Financial Counseling.