Ten lessons to teach your children about money

When it comes to teaching your children about money there are some lessons that can’t be taught in the classroom. During global lockdown, this may be a good opportunity for them to learn about managing their finances.

1.Budget to save
Today’s school-age children are facing a long wait to get on the property ladder and to retire.  We recommend getting them into the habit of saving and budgeting as early as possible, so they are prepared for these milestones.

2. You only spend it once
Children need to understand the value of money.  There are now apps and prepaid cards that can be used for purchases and monitored by parents.  This will gradually introduce them to an increasingly cashless society.

3. Needs vs wants
It is important to help children decide when to spend now and how to budget in later life.

4. Money is earned
Don’t give pocket money without requiring your child to do something for it.

5. Save to give
Children are naturally generous.  Being able to give some of their pocket money to charity may be an incentive for them to save more.

6. Paper vs plastic
Just because you can’t see the money when using a card, it doesn’t mean that it isn’t being spent.  Explain the difference between a credit and debit card and how the money in a current account is just like paper money.

7. Keep half, spend half
A good mantra is, “keep half, spend half.  This is something children can apply now, as they do not have the large outgoings adults may have.  If they carry this principle into adulthood, it will transform their life financially.

8. Avoid peer pressure
Stress the importance of making healthy choices with money and life in general.  Look at social channels and point out how things are manipulated, how ‘influencers’ are paid to sell products.

9. Compound interest
Described as the eighth wonder of the world by Albert Einstein.  It is important to teach children about the effects of compound interest.

10. Prepare for the unexpected
The latest virus pandemic has shown us all how important it is to have savings for a rainy day. Building on good financial health helps deal with all types of events both good and, not so good.

By Philip Harper  |  April 2020

Anyone who reads the papers knows that the world’s economies are going through a period of uncertainty. It’s natural at these times for some investors to get twitchy, which only serves to make
the situation even less predictable.

The truth is that share prices invariably rise and fall, but for the long-term investor, this shouldn’t need to be the primary concern. Historically, long-term performance tends to even things out and there are even good reasons to see opportunity where other investors are seeing only gloom.

The world of investing is overflowing with metaphors, adages and fables, so here are our top seven principles for keeping your head when all about you are losing theirs.

Investing can feel like a hazardous voyage particularly during turbulent times. This is when our horizon can veer towards the shorter term, we have selected three of our principles to focus on that are particularly relevant to current market conditions.

Stay invested: The perils of missing the best days
When markets are volatile, it is often tempting to exit the market or switch to cash in an attempt to reduce further expected losses. However, it is impossible to time these movements correctly as no-one has a crystal ball to predict future movement, so being out of the market for just a few days can have a devastating effect on returns. Using UK equities as an example, the chart (right) shows how missing just a few of the best days can have a devastating impact on returns.

Over the last 25 years, using the example of a £10,000 initial investment, an investor who stayed in the markets throughout the period could have a potential return of more than double that of an investor who missed the best 25 days.

Invest for the long-term: Our proposition rewards the patient investor
Wise investors know that investing is a long-term commitment. Historically, investors who have been able and willing to ride out the periods of decline in the markets have seen their investments recover. Investing with a long-term outlook and with long-term goals is the best way to reduce the impact of stock market fluctuations and see out periods of volatility. Taking the last 25 years, there have been many examples of short-term volatility but over the long term the trend is a rising one.

Steering a course towards a longer-term investment horizon will always require a steady hand on the tiller in the shorter term. These fundamental principles are a useful reminder of the strategies that will continue to benefit our clients.

Don’t just invest in cash: The eroding power of inflation
It is often tempting to see cash as a safe haven against all market volatility. However, recent years have seen higher rates of inflation and lower rates of interest on your cash. The pressure that inflation can place on your cash can be very debilitating and in the long run not being invested in the markets can be inherently riskier than being invested.

At just 2.5% inflation, an investor would lose nearly half of their purchasing power over 25 years. So, £10,000 today would only have the purchasing power of £5,310 in 25 years’ time.

Interest rates have always historically outstripped inflation. Investing in a standard interest-bearing bank account would have provided some protection against the ravages of inflation. However, looking forward interest rates are expected to stay below inflation.

By Philip Harper  |  March 2020

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By Philip Harper  |  July 2019

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