We all want to make sure our children have the best start in life. Between the cost of living, rising house prices, and an uncertain job market, the younger generation faces many challenges.

Personal finance is taught in schools, but this can be an abstract concept without any real-world experience to apply it to. You can help your child by introducing financial responsibility at an early age.

Of course, teaching self-sufficiency while also offering support when needed can be a careful balancing act. We look at some of the ways in which you can encourage financial independence in children.

Teach them About Budgeting
Learning the value of money is the core of a child’s financial education. Children need to understand that money is not an infinite resource, and that sometimes they may need to sacrifice a short-term want for a longer-term need.

Some of the ways in which you can help your child understand budgeting are:

• Linking pocket money to carrying out jobs within the home. This helps to instill a work ethic and puts more value on the money they have earned.
• Making a game out of it by using an app to track tasks and pocket money.
• Set up bank accounts for your child, including a spending account and a savings account. Provide them with online access and a debit card if they are old enough.
• Encourage them to save up for larger purchases rather than spending all of their money in one go.

Research has shown that children (and adults) who can ‘delay gratification’ are more likely to be successful and achieve their goals. Some people find this easier than others, but it is a skill that can be taught.

Put Gifts to Good Use
If you or other family members want to make cash gifts for your child, there are a number of efficient ways to do this. The money can be used to buy a first car, get on the property ladder, or even contribute towards their retirement.

Some options for saving and investing for children include:

• Savings accounts – these are easily accessible and pay regular interest.
• Investment Accounts – this is a regular savings account that invests in the stock market. The account can be assigned to your child to maximise gift tax savings.
• Premium bonds – this offers the chance of a monthly tax-free prize.
• Pensions – you can contribute up to €3,000 (gross) into a pension for a adult (over 18). This is extremely tax-efficient and offers long-term growth potential. However, they won’t be able to access the money until at least age sixty under the current rules. For example, €25k invested into a pension by age 22, grows to €165k by the time your son or daughter reaches sixty.
• Trusts – for larger gifts, a trust might be appropriate. This allows you to set aside assets for one or more beneficiaries without giving them complete control.

The most suitable option will depend on the amount, the intended purpose of the money, and how much control you want to give.

Learn About Investing Together
You can teach your child about finance by involving them in investment decisions. Clearly, this will appeal to older children more than others, but one option is to make a game out of choosing funds and seeing how they perform. You can even teach them about shares and trading, although caution is encouraged if you are putting real money into the market.

Some of the investment concepts to learn about are:

• The relationship between risk and reward.
• Asset classes (equities, property, bonds, and cash) and how they behave.
• Asset allocation and balancing risk.
• Market volatility – this is a feature of investing rather than a problem to be solved.
• Investment discipline, including the power of compound growth and pound cost averaging.
• Investment efficiency, including using tax allowances and keeping costs down.

Your child won’t learn all of this overnight, but by starting small, you can start to build investment confidence as they get older.

Book recommendation:
Money Matters, written by Susan Hayes, is a great introduction for teenagers to the world of saving, investing, and money management. This is book was specifically written for transition year students in Ireland, however, I think it is suitable for most teenagers.

A link to the book is here Money Matters (edco.ie)

Encourage a Positive Money Mindset
As well as the practical aspects, it’s important to pass on positive values when it comes to money. Toxic spending habits, excessive frugality, and habits such as compulsive gambling often have their roots in childhood and a parents’ relationship with money.

Some ideas to encourage a positive money mindset are:

• Teach your child to set goals and help make it possible (but not too easy) for them to be achieved.
• Be open about money and involve your child in major decisions.
• Discuss when it is appropriate to borrow money, for example, to buy a home or invest in education.
• Encourage logic and critical thinking – this can help your child make good decisions and avoid scams.

As a parent, one of the most rewarding things you can do is to help your child find their independence. A positive relationship with money is a good start.

Please don’t hesitate to contact a member of the team to find out more about financial planning for children.