4 Reasons to teach your kids about money in 2020 - the FEAR edition

There are probably hundreds of reasons why parents should teach their kids about money. Each reason will likely motivate parents in different ways. Some parents will be motivated to avoid the consequences of not teaching their kids about money (fear), some will be motivated to give their kids an advantage and some will motivated by what others are doing.

Over the course of a few blogs I’m going to set out different reasons why you as parents need to teach your kids about money in 2020. Each blog will focus on different motivation factors.

In this blog I’m going to focus on FEAR factors.

Below are 4 reasons why you as parents should consider the financial future of your children.

1. You will waste their education

You will spend a lot of time and possibly money ensuring your kids get the best education possible. You will think about which school they should go to, make sure they do their homework and, help them revise for big tests. Then hopefully after all those years they will get the right grades enabling them to get a good job which pays well and gives them lots of opportunities. You will feel proud of them and know you have done all you can for them.

What if then you find out that they have taken out a loan to buy a new car as all their work colleagues have nice cars? What if they get a promotion and want to move to a nicer area but they need some of your help for a deposit on a fancy apartment?

Picture then, a few months go by and you ask them how they are getting on with paying back the loans only to find out that they haven’t been able to that month as it was a busy month due to “expensive meals out with the new rich neighbours, new tyres for the fancy car and a 5-star holiday”.

After a few years they have their own family but you find out that they really don’t like their boss, they are working crazy hours and hating their jobs. You say that they should find another job, however, their response is they feel trapped as they might not be able to get another job with the same money with less hours or pressure. They have no savings to rely on so can’t just leave. Their young family have got used to their standard of living, they can’t just change.

Despite the great education you helped them to get, their lack of knowledge about money means that they are trapped in the ‘rat race’ and wasting money trying to “keep up with the Jones’”.

Make sure you ensure your kids are educated both academically and financially.

2. They will need even more money

Our parents had it much easier than us. They had student grants where as we had student loans. They had affordable housing where as we are lucky to find an affordable house within an hour of our office. They didn’t even have university tuition fees in the UK (before 1998).

If you think we’ve got it bad - this is nothing compared to what our kids will have to deal with. They will need even more money.

Whilst we had student loans, the interest we paid on them was low. My student loan from the early 2000’s grew only by inflation. Today, depending on a student’s graduating salary, student loans can start to increase by inflation plus 3% per annum. They need to find this extra 3% per annum from somewhere. That’s the rate today and who knows what the rates could be in future.

I don’t think I need to say too much about housing but I struggle to see a world where housing in 15 years time is more affordable than it is today (relative to salaries). Given housing is crazy expensive already, I doubt our kids will be able to buy their own place until they are over 30 unless they start saving and investing now!

If your kids don’t know about money then they are likely to walk into this bleak financial world with their eyes closed.

3. They will have less money to rely on

We as parents are all probably a bit naive about what money we’ll have when we retire. Most of us have some money in our company pension scheme(s) and the option to ultimately downsize our house to release some capital. We’ll hopefully have some savings and possibly receive some inheritance money. This combined is hopefully enough to survive on despite the fact we are expected to live longer and medical costs are on the increase. There remains the risk we don’t have quite enough money and will need to make some material changes to our lifestyle in our ‘golden years’. We may have to downgrade our supermarket of choice and opt for a staycation instead of a vacation.

What about our kids’ generation? Company pensions are getting worse, not better. Final salary pension schemes are becoming extinct. They can’t rely on them. They might not be able to get on the property ladder or, if they do, there might not be much scope to downsize if they had to buy small. As we as their parents are expected to live longer and will need to spend more there is unlikely to be much inheritance left to give them!

All in all, they really can’t rely on what we and our parents have to rely on. At least us as parents have a chance of a modest retirement pot. Our kids need to make sure they know about money asap and we must help by starting to save (invest) for them now!

4. They could be stressed

It’s great that there is now much more awareness about mental health issues and support on offer for those suffering from them.

A lot of mental health issues are triggered by stress. If we look at the polls for reasons why people are stressed today, money nearly always comes out as the number one reason.

Whilst having money doesn’t lead to happiness, not having money, or not knowing how to manage money, can lead to stress and unhappiness. These stresses can take over people’s lives. Whilst they might be fine on the outside, their money troubles could be all they think about.

This is especially true as money is such a taboo subject, i.e. people in general don’t talk about money so if someone is struggling they feel bad about raising the subject.

We need to do two things to avoid this. Firstly make money less of a taboo subject so our kids grow up comfortable talking about money with their parents. Secondly, we need to make sure they are confident and knowledgeable about money to avoid stress in the first place.

There you have it, 4 reasons you need to start teaching your kids about money in 2020. If you’ve read all these reasons and still don’t take action then that’s your decision but you’ve now been warned!

Next steps - How to teach your kids about money?

Two areas to focus on to help teach your kids about money.

A. Make the topic of money as engaging as possible:

There are lots of games and books which you can play and read with your kids to help them learn about money. Here is a short list of games and books to help you: www.bluetreeblog.com/resources.

You need to talk about money in an engaging way. This is not easy as money can be boring and abstract for kids. Given this challenge, I have written a free ebook called ‘How to train your kids to become Financial Superheroes’. This ebook helps you engage your kids on key money topics using evil financial villains and being trained in superpowers to overcome them. It includes tips, games and stories to share with your kids. Visit www.bluetreeblog.com/ebook for your free copy.

B. Start saving (investing) for them now and letting them witness their savings grow:

This will help in terms of them having some savings but, more importantly, helping them form a savings mindset which is missing from so many adults today. You don’t need to save a lot to make a big difference. As your children will not need the money for many years you want to make their money work as hard as possible. Therefore, you should consider investing for them. This is expected to increase their savings relative to simply putting the money in the bank but it can help them learn that investing can be done simply. To learn more about investing visit www.bluetreesavings.com/investing-faq.

Investing just £20 per month from birth to age 18 could result in over £8,400 *. If you add money given to your kids from friends and family, that pot of money could be significantly more.

We can’t leave our kids financial future to chance. We also can’t rely on schools to teach our kids about money. A lot of our kids’ money habits can be formed whilst they are young so acting now is super important.

There are no excuses not to teach your kids about money now!

As mentioned above, I’ll be releasing other reasons to teach your kids about money based on other motivation factors. Make sure you subscribe to www.bluetreeblog.com so you don’t miss them!

*This is based on investing the money in the stock market and assuming a return of 7% pa. This is an illustration only. The actual return return you may receive could be materially different.