It’s often said that you can’t teach an old dog new tricks – instead, it’s far better to get into good habits at a young age. And this is also true when it comes to finance. If you want your children or grandchildren to be interested in saving and investing, it’s best to start them young.
But how do you make money interesting for a young person? Here are some ideas:
Match their Money Box
Anyone who has read about the famous “Marshmallow Test” will know that delayed gratification is a concept many children struggle with (and a lot of adults too!). Saving means foregoing what you want now, in the hope that you’ll have more later.
Christine Benz, director of personal finance at Morningstar, says incentives are the key. “Set up some kind of in-home matching program,” she suggests. “Offer to match your child pound for pound on any amount of their allowance or birthday gift that they’re willing to save for the future.” Of course, for those children who become serious savers, this could end up being a costly exercise, but it’s a great way to demonstrate that saving for the future really does reap rewards.
Go for Goals
As adults, we’re usually saving with something in mind, whether it’s money for our next holiday, for a house deposit or for retirement. Having a goal to work towards can keep you motivated to carry on saving even when it doesn’t feel like top of your priority list, and achieving our goals can bring great satisfaction too
While kids are unlikely to be motivated by the notion of a comfortable retirement or a house deposit, there’s usually something on their wish list – a new bike or phone, for example. Benz says it’s a perfect opportunity to bring up the concept of time horizons. She adds: “You might also explain that money for short-term expenditures need to be kept somewhere safe where they can’t lose money. If, on the other hand, your nine-year-old says she’d like to buy a Tesla when she’s 21, you can discuss how to invest for long-term goals.”
Make it Interesting
Inspiring children is not about creating a well-balanced retirement portfolio, says Dan Kemp, chief investment officer at Morningstar Investment Management: “It’s about igniting a desire to learn more – and that means different rules apply than normal investment.”
That means investing your child’s pocket money in a sensible, diversified, global fund may not do the job if your goal is make things interesting. Instead, it may be best to focus on individual shares in companies your child recognises. By owning a few shares in a company, children will naturally take more interest and start to form an opinion on the quality of the business and its future prospects.
“Owning part of the world around you is fun and may lead to a lifelong interest,” says Kemp. “Don’t rush to start teaching concepts such as valuation, just enjoy following a couple of companies for a while and see how they do.”
But Don’t Forget all of the Rules
But while individual stocks may be fun to follow, Benz points out that a few bad calls could easily put someone off for life. She says it makes sense to have a simple, broad, low-cost tracker fund at the heart of a child’s portfolio, so they get lots of diversification from the get-go. It might not be as glamourous as owning a stake in Tesla, but the chances are they’ll still have exposure to some of their favourite stocks. “If you’re in the S&P 500 that’s Apple, Tesla and Netflix, and if you hold the MSCI World you’ll own LVMH, Toyota, Nestle and Sony,” she points out.
Make it Relevant
Many young people today live their lives online and through devices, and it makes sense that this is also how they will manage their money through their life. So, while the concept of filling up a piggy bank may have nostalgic value for Mum and Dad, little Johnny is likely going to find it much more interesting to use an app to monitor his savings.
There are plenty of child-friendly apps out there to help, and you can even get a prepaid debit card for them to use for spending – with these you can’t go overdrawn (so no unexpected fees!) and there are options to limit the amount that can be spent in any single transaction or the type of purchase being made to keep things safe.
