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How to make sure your kids don't waste their savings when they are 18

Are you worried that your kids will waste the money you have been saving for them, once they turn 18? This is a common worry for many parents I’ve spoken to. The best advice I can give to those parents is to get your kids to start making a plan for those savings as early as possible.

"If you fail to plan, you are planning to fail!"

Why is making a plan so important?

Kids who receive money on their 18th birthday, and don’t have a plan, are likely to feel like a ‘lottery winner’. We’ve all heard the stories of how people who have won the lottery quickly spend all their winnings and are now back to where they started. The truth is that people who don’t make a plan for their money are much more likely to just spend it all. On top of that, they are likely to spend it all on impulsive purchases, i.e. things that are of interest to them at that time rather than thinking about the future.

I’ve heard some horror stories - for example, one 18 year old spent all their savings on a set of ‘Gold Teeth’. Needless to say, the parents were not impressed and it wasn’t long before the son regretted his purchase.

I’m not saying your kids shouldn’t spend their savings. Their plan might be to spend their money on a car or towards a deposit on a home. The main benefit of having a plan now means you are materially reducing the risk of them spending the savings in an impulsive manner.

Plan ideas

Here is a list of things that your kids could consider for their plan:

  • Car

  • A partial house deposit

  • Gap year (traveling) before they start work

  • Money to start their own business

The key is to make sure that your kids focus on what will really make them happy, not just in the short term but for the long term. This will get them to think about themselves rather than what they think they should be spending their money on based on social or peer pressure, i.e. Keeping up with the Joneses.

Encourage your kids to keep some money in savings so they become financially healthy

People who are financially healthy are the ones that always have some money in savings. This money can be invested so that it continues to grow and provides an extra income over the long-term.

For example, if £1,000 was invested then it could generate around £70 a year in returns (on average). The challenge is that a lot of people would rather spend £1,000 now than get £70 per year (despite £70 per year over many years being worth a lot more than £1,000). Helping your kids appreciate the future worth of a stream of income can be the difference between them being 'Rich' and being 'Wealthy'. The Rich have money today (the £1,000) but are not as financially healthy as those that have money over time, the Wealthy (those that pick the £70 per year). To help your kids understand the difference between being Rich and being Wealthy, please read the blog ‘Rich Kids vs Wealthy Kids’ (link at the end of this blog). When talking to your kids about their plan for the money they’ll get when they are 18, try and encourage them to keep some of that money in savings or investments. This will set them on the path to being financially healthy and wealthy. Hopefully by the time they are 18, they will be well aware of ‘The 3 Rules of Wealth’ and taking the actions to make sure they follow those rules.

The conversation I’ve had with my kids

Despite my kids only being 6 and 8, I’m already getting them to think long-term. As they are young I show them their savings / investments as Blue Trees (each time they save some of the money, it’s like planting a seed). I then talk to them about what they are going to do with their Blue Tree Forest when they are older.

“Are you going to cut down your forest and spend all the money?”

They really don’t want to cut down their trees (as they visualize this like chopping down real trees). They say things like “I want to keep my trees but I might take off some branches to buy something nice”. That’s completely fine with me. Having a balance of spending and saving money is healthy (most people feel you either save or spend, the truth is that you should do both to be happy).

Benefits of saving money

As your kids might have a YOLO (‘You Only Live Once’) mindset, it’s worth highlighting the many benefits of them keeping some of the money they are given. The key benefit of building up savings and investments is that the money saved will start to grow. As it grows it starts to generate an income whilst they sleep (which is an amazing feeling). If they continue to add more to their savings / investments, they will get to a point where the income from their savings will be greater than their expenses. This gives them the ultimate benefit of ‘freedom’!


ACTION: If you are saving for your kids, have a conversation today to help them start planning on how they are going to use that money. Encourage them to keep some in savings / investments so they can continue the journey towards becoming wealthy. The ultimate goal is to have enough savings to cover their ongoing expenses. Remember to educate your kids on what might be a good use of the savings rather than just telling them. If you start telling them what they should and shouldn’t be using their money for they are likely to lose confidence and see money in a negative light. If they are planning on buying a car, make sure you tell them the story about ‘The Dragon that pooped too much! Are you encouraging other parents to talk to their kids about money? The more we can all do to promote talking to kids about money, the more likely it is that the next generation will grow up to befinancially healthy. Let’s all do our bit. Thank you for reading! Will

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