Teaching children the value of money and the potential financial benefits of saving and investing over time is one of the most valuable things parents can do.
Many of us are familiar with the timeless saying, “money doesn’t grow on trees.” This proverb underscores the notion that money is not something that can be easily obtained; rather, it must be earned, a powerful lesson for children to learn.
This lesson remains incredibly relevant for children, particularly in a time when many families are feeling the pinch due to rising interest rates and high inflation. However, there’s another side to this financial equation: giving money to children can yield significant long-term benefits and could be one of the most impactful financial steps parents can take.
The timing and method of giving money to children can differ from one family to the next. Nonetheless, it is most effective when children have reached an age at which parents can initiate discussions about the role of money in terms of savings and investments.
Whilst much is said about the “Bank of Mum and Dad,” where parents provide financial support to their adult children for various purposes, transferring money to younger children serves a different purpose. It may involve giving them a small financial head start, but its primary goal is for parents to offer financial resources that help their children learn about saving and investing.
Crucially, financial literacy and education should be integral to any financial transfer from parent to child. Parents can use this as an opportunity to engage in meaningful discussions with their children about money management, investments, and financial planning. By imparting financial knowledge, parents empower their children to make informed decisions regarding their personal finances.
Transferring money to children is an opportunity to instil financial responsibility. These transfers can take the form of allowances or financial rewards for completing tasks or achieving milestones, all of which can be part of a consistent investment strategy on their behalf. Rather than focussing on simply transferring money, use this as an opportunity for imparting essential financial skills to children. These skills include enhancing children’s financial literacy, empowering them to manage their own finances, and teaching them the importance of budgeting, saving, and making wise investments – skills that will serve them well as they mature into adulthood.
These early lessons can have a lasting impact, shaping their financial habits and attitudes throughout their lives.
