Have you ever woken up and wondered how did I get here? If I could go back and do it again what would I have don’t differently? How many of your choices do you now deem stupid or a waste of time or money? For many of us we weren’t taught how to look after our money or taught what to do with it. Looking at these questions, I know that there are things that I’d definitely do differently. I’m also aware that some of the things I’d have changed were actually out of my control. We need to make sure our children have less of these questions and worries growing up. It is time to invest in your child!
Our job as responsible adults / parents is to pave the way for our children and give them the opportunities we never had! Your child needs to be set up for the future and the best way to do this is by educating them in how to make money, use their money and avoid crazy amounts of debt to further their education.
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How can you help your child with their money?
“Give a man a fish and he’ll eat for a day. Teach a man to fish and he’ll eat for a lifetime.”
This quote is brilliant, but it doesn’t extend to just encouraging your child to get a job. I had a job from 13 and this didn’t change or help my understanding of money. I worked so I could buy the things I wanted! This is what money was for. So, from the age of 13, instead of me investing my money, which seems like a strange concept for a child, I would make it and spend it right away. As a student I didn’t have university paid for; when I became a teacher, university fees had gone up to £9000 a year. I didn’t have enough money set aside to pay for either university or my post-grad teaching qualification. Any money I did get or make didn’t go to paying this debt down as I didn’t understand anything about interest. It was not something I was ever taught. End result – DEBT!
The extreme results of not knowing about money
What type of jobs could they have?
From the age of 13, I was delivering newspapers. This was fantastic as it taught me discipline. I would wake up daily at 6am to get ready for my paper route. I had gotten so efficient at sorting it all out that I used to finish the job in around 45 minutes! Unfortunately, I wasn’t very entrepreneurial as a child – I could have used that money to make even more money!
You should encourage your child to be an entrepreneur. Help them create little business ventures to make money in ingenious ways. Need some inspiration?
- I had friends who would buy sweets and drinks from the local shop in the morning and sell them to their peers at break and lunch; they had their own tuck-shop!
- You could create your child some business cards about their local car washing business and drop them through the letterbox in the local area. On the weekend, they could wash people’s cars for money. You are offering convenience as people often don’t want to do it themselves and now, they don’t need to go to the carwash!
- They could also create their own jewellery making business and sell these little bangles at school!
- A student in my form group used to make slime and sell it around school (I don’t understand the obsession with this!)
What should we teach them and how should we impart this knowledge?
The idea is not to instil a sense of fear in your child or to create a scrooge who only cares about money! Rather it is about giving your little one the best start to life with the right education about money. The hope is that they can grow to be confident to make sensible decisions and live a debt free and therefore financially stress-free life.
So what are the main things we at End-Rich will be teaching our little one?
- The value of saving – To invest in your child, you first need to understand how money works and understand how to keep it. Then you will teach your child the value of saving with the intention to use that money for their future. Children should be reminded that saving is not just about saving for things they want, but about the value of having money that is available to them.
- The 10% rule – We should teach them to save a minimum of 10% of their earnings. As a child, I would earn £14 a week, so I should have been saving £1.40. Granted you can’t buy much with that, but you are trying to build a mindset. Ideally a child doesn’t need to spend £14 a week so should technically be encouraged to maybe save as much as 50% – £7.
- Positive reinforcement – Get that child a bank account and praise them for doing so well with their savings! Encourage them to want to save more by giving them further incentives. Reward them for saving: this could be monetary or by providing them with an experience once they reach a certain amount. Positive reinforcement from the people you care about goes a really long way! Show your child how proud you are of them.
- Emergency funds – If your child wants to buy something, stress to them that it is imperative that their account should not be left empty. Introduce to them the concept of an emergency fund! Explain that when they are older, certain circumstances may be out of their control and they may lose their job. They should always have money left over to help pay for their bills etc. this should be around 3-6 months of their expenses. They don’t really have expenses so just get them to leave some of their money available.
What should they be saving for?
The world is an expensive place to live in and can be truly unforgiving. Property prices for example are increasing and universities cost around £9000 a year as well as living costs. These things will not pay for themselves! Invest in your child to help them reach their potential. Perhaps when they are 17 they’ll want driving lessons and to pay for a car. Give them incentive by telling them you’ll pay half for both, but they will need to raise the rest of the money themselves. These kinds of tasks help to keep your child motivated with razor focus on what they want.
A good work ethic is important, but we also want our child to start being self-reliant. You will need to teach them how to budget and make wise choices. This is something that can be done from a young age when developing numeracy skills! Download our simple child friendly budget to help your child on his or her way to building the foundations of excellent money management. They will know how to separate the money they are saving and use the additional money to start purchasing things they might want for themselves.
It is important that when our children start earning money, they know the difference between wants and needs. They should not be spending money unnecessarily as they know how long it takes them to make!
How can you help your child?
I had a small amount of money set aside for me growing up. It was a small amount, enough to pay for one year of university. When I received this money, I could do with it what I wanted. Needless to say, my wealth education wasn’t substantial, and I used that money unwisely. However, having gone through all of the steps so far, your child should have a good foundation in understanding how money works and the importance of it.
Invest financially in your child
Why not create your child a little nest egg of their own? You could put aside some money every month for your child until they reach 18 or 20. Put this money into a high interest savings account and currently, you’ll be lucky to get 1% at the time of writing this… That means that if inflation continues at an average of 1.79% that the money will decrease in value over that 18-20 year timeframe! Bad Idea.
Compound interest
Why not consider this instead? Compound interest is a wonderful thing! Why not invest that money in index funds? Own a large percentage of shares for small amounts of money that will return you between 5-8% conservatively. Create your child a Vanguard Junior ISA. Putting as little as £100 a month into a Target Retirement Fund that ends around the time your child reaches the age of 18, will make a ton of difference. I think a target retirement fund would be a good idea as you don’t need to know much about investing to use it, and it balances itself every year so you don’t need to worry about it. Invest in your child and you could see some amazing returns that will change their life for the better.
Example 1: 5% average return
- £500 initial deposit that may require additional saving before you have your child.
- £100 per month invested (£50 from both parents).
- 5% rate of return
- 18-year period
- Inflation at a rate of 1.79% as it was used in the above example
- You will have put aside £25,221.72 and have incurred £15,494.47 of interest. Your child can start their adult life with £41,216.19. That’s enough for 4 and a half years of university fees!
Example 2: 8% average return
- £500 initial deposit that may require additional saving before you have your child.
- £100 per month invested (£50 from both parents).
- 8% rate of return
- 18-year period
- Inflation at a rate of 1.79% as it was used in the above example
- You will have put aside £25,221.72 and have incurred £30,751.35of interest. Your child can start their adult life with £56,473.07. That’s enough for 6 years of university fees!
Building this nest egg
This money is not available to take out until your child is 18 – fantastic as it means you won’t dip into it! If you want to pay in more that £100 a month, then your child will have an even better start into their adult life. If you have other family members that contribute to your child, you can add this money also. Any monetary presents when they are too young to use can go in this pot as well, unless you have things they need. As the child gets older and has their job, they can contribute a small amount of their wage to this as well. Show them this to help encourage them.
However, I cannot stress enough that you will need to teach them the value of money as mentioned above, otherwise this sum of money could cause them to spend it on stupid things when they hit 18!
Invest in your child by using someone else’s money
This may be controversial, and some people may not like this idea as we encourage avoiding debt. But consider this…Why not still allow your child to take student loans. If they use the governments £9,000 a year to pay for university, it means they can leave their wealth to build for even longer. They can still work while at university to pay for their day to day activities. As their parent, you can also help to contribute to their living maintenance. They could still take a maintenance loan and add it to their Vanguard account. This way their pot will be even larger and building interest on a greater sum of money. If you use this method, perhaps you want a fund that is more aggressive than a target retirement fund. The more aggressive the fund is, the more money it can make over time. The draw back is that it is more volatile and will go up and down more. If you still want a relatively carefree investment, why not use a Life Strategy 100 which should be more aggressive.
If you are worried about this, as of 2020, this money doesn’t need to be paid back until they are eligible, meaning earning just under £19,000. So, if your child does a three-year course then starts working with a salary of £25,000. You will then use the pot to instantly pay off this loan to avoid paying interest rates as high as 2.4% (- 5.4% a year depending on wage). However, if your child stays in education doing either a 4 or 5 year course, or go on to further studies, they don’t pay it back until their wage is high enough. This would have been a fantastic wealth building tool! If only I’d known back then!
Making that wealth go further
Encourage your child / now adult to not keep taking money from this pot. Instead they are to change from their target retirement fund to either a later date or change the type of life strategy they have to something that will be a little safer. This is as simple as switching your shares to others. If they want to try and build more wealth, they can manage the fund themselves by choosing a bond share split that is right for their level of comfort.
A good example put forward by the creator of vanguard, John Bogle is “roughly your age in bonds”, meaning if you are 45 you should have around 45% in bonds and the 55% in stocks. This is for safety and just a rough guide. Your child will have to choose the level of risk themselves based on where they are in life and how aggressive they want to be. When your child starts work, I’d suggest a 80/20 split. 80% into stocks and 20% into bonds.
How much should they invest?
Having already made a fantastic nest egg. If they contribute around 25%+ their income into their investments over the 10 to 15 years of their life, they will likely have more than enough money to buy a house and retire. If they continue this for even longer, they can invest in their child! You have already created generational wealth and can share education with each generation to continue building a positive mind set.
If they decide to use some of the money to buy their first house with a small mortgage (amount depends on location), they can rent out one of the rooms. The amount of rent collected should be enough to cover mortgage payment, allowing them to live for free and save additional money every month to build their fund even more.
Even if they decided that they didn’t want to invest as much anymore, the fund would grow by large amounts every year because of compound interest. Meaning they could spend extra money travelling and enjoying themselves. What a fantastic opportunity! An opportunity that not many people get. But your family will, all because you took those first steps to invest in your child.
Conclusion
Teach your child the value of money by encouraging them to work and save. Reward them emotionally and generously for doing well, which will make them want to continue. Teach them how to budget by breaking down their spend with them. Allow them to create different saving pots as they are growing up to allow them to save for different things.
If you invest in your child a small sum of money each month until they’re 18, they could have around £56,473.07, which will fully cover their university fees if they choose to go, or give them a fantastic start in life. You can also add some of their savings to this pot, so they feel involved in this wealth building process. If they do go to university, you could take as much student loan as possible and add it to their investments. This money will not be paid back until they are earning around £19,000 a year as of 2020. This is plenty of time for your child to earn near to £100,000 or more depending on how much they have also been adding to the pot before starting their first full time job.
Encourage them to continue investing around 25%+ of their wage when they start working full time (or before if you like). If they can afford it, they could be adding around 50% of their wage, especially if still living at home! Make sure at this point that as soon as they are earning above £25,000 you start paying off the loan. As you and your child have been investing in a tax-free ISA, you can take out the entire amount for free without paying any tax!
Moving forward
I really hope you have found this useful. It is time to make a change for ourselves and our family. Invest in your child today and secure their future!
Please comment, share and like this post. It would be great to spread the word and help to change our family’s futures for the better. Who really wants to retire at 68? Who wants that for their children! I surely don’t!
Disclaimer – This is not a recommendation to everyone, just what the End-Richs do. If this is something you are interested in, please make sure you do lots of additional research and if necessary, contact a financial adviser.
1 thought on “Invest In Your Child And Secure Their Future”
intresting post Alex, full of relevant information and detail. It is important to teach our children about money as the most significant gift you can give a child is the gift of knowledge and education. They will need this to manage a world that at times, can be full of challenges and confusion.
working in the area of psychology I can directly see the consequences of lack of financial knowledge. This can get young people in serious financial trouble which then will impact on their emotional and psychological wellbeing. keep up the good work.