10 tips to help your grown-up children and grandchildren manage money

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Although financial literacy has been part of the National Curriculum for seven years, many schools still don’t teach personal finance as standalone lessons.

This means it’s up to parents and grandparents to teach children about money. So, if you have grown-up children or grandchildren, what are the key lessons you should teach them to help them manage their finances? What do you wish your parents had told you when you were younger?

Here are 10 tips to share with your adult children and grandchildren.

1. How to budget

Budgeting is one of the cornerstones of good financial planning. Establish how much is coming in and out, spend less than you earn, and save the difference.

There are many ways to set a budget, so suggest some options with your child or grandchild. A common approach is to use the 50/30/20 method. This is where:

  • 50% of their income is spent on needs: rent/mortgage, bills, food, transport to work
  • 30% of their income is spent on wants: eating out, shopping, trips, subscriptions
  • 20% of their income is spent on saving or debt – paying off debt beyond minimum payments, or saving into an ISA, investment, or pension.

Without establishing a budget, it will be hard for a child or grandchild to create a sustainable financial plan.

2. Why it’s so important to have an emergency fund

Almost before anything else, it’s important to encourage your child or grandchild to set up an emergency fund.

It’s likely they have experienced an unexpected bill – perhaps their car broke down or they smashed their phone? Having a sum of money in an easy-access account is essential to cover the cost of whatever life may throw at them.

3. How interest on debt works

When it comes to borrowing, there’s no such thing as “free money”. A vital lesson to teach is that interest on unsecured debt such as credit cards tends to be high, it can be extremely expensive, and take years to pay off.

Explain that buying consumables on a credit card – whether it’s a holiday or a hedge trimmer – can end up costing them much more than they expected.

If your child or grandchild has £5,000 on a credit card with an APR of 18.9%, and they pay £100 per month towards the debt, it will take them seven and a half years to repay the debt, and they will pay £3,987 in interest (figures from the Which? credit card calculator).

4. Why they should retain a good credit rating

Missing payments on loans or credit cards can adversely impact your child or grandchild’s credit score for years. So, you need to explain to them the effect that this can have on their future.

For example, an innocuous missed payment on a credit card could see your child or grandchild rejected for a mortgage when they come to buy a home. Or, if they are accepted, they could pay a higher interest rate to reflect this perceived additional risk.

Maintaining a good credit record makes it much easier – and cheaper – to obtain credit in the future when they really need it.

5. The benefits of compound growth

As Benjamin Franklin said: “Money makes money. And the money that money makes, makes money”.

The earlier a child or grandchild starts saving, the more powerful the benefits of compound returns. Teach them that if they keep the returns their money has earned invested, they make extra gains the following year since their overall balance has increased.

Pensions are a great way of demonstrating the benefits of this. Encouraging your adult children to start contributing to their pension early can benefit them through decades of compound growth.

6. Share your own mistakes

Everyone has made daft mistakes with money. Whether you made an ill-advised purchase, failed to shop around for a deal, or borrowed money you shouldn’t have, you will have cautionary tales to share with your adult children and grandchildren.

Sharing your own mistakes can help children avoid making the same errors as you.

7. Have a goal

A recent study by insurer Aegon found that having a clear idea of what we want our life to be like in the future can improve the financial decisions people take.

For example, if your child or grandchild really wants to get onto the property ladder, they are probably more likely to consider saving than spending.

According to Aegon, only 8% of 16 to 24-year-olds have a clear financial plan, and only 10% of 25 to 34-year-olds. Encourage your adult child or grandchild to think about what they would like to achieve in the future and set targets and goals. Having a plan will focus their mind to make better financial decisions.

8. Talk about money

Talking about money isn’t very British. Indeed, it’s been a taboo subject in polite company for years.

However, encouraging adults to open up about their finances can be hugely beneficial. It can help them to avoid mistakes and support the process of the intergenerational transfer of wealth.

Include your adult children and grandchildren in conversations about your own intentions – and even invite them to your meetings with your financial planner. This will ease the transfer of assets and give your family a clear insight into your plans.

9. Give to charity

With a little encouragement, giving to charity can become part of your child or grandchild’s mentality.

In addition, making charitable donations can also teach social responsibility. Encourage them to make the most of workplace giving schemes and Gift Aid, which can also have personal tax benefits.

10. The benefits of working with an expert

Legendary firefighter Red Adair once said: “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”

Working with a financial planner offers both financial and wellbeing benefits. From greater peace of mind and feeling more in control to tangible pounds and pence benefits, financial planning adds value.

Encourage your adult children to work with a planner to get the absolute best advice. It’s a great way to help them to meet their goals.

Get in touch

If you’d like to explore how we can help you support your family’s finances, please get in touch. Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

 

 

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