Let me set the scene for you.
It's 2035. People everywhere are running scared. They can't trust anyone. The force field that protected so many people in the past is getting weaker. As a result they are at the mercy of the evil villains roaming the planet. No one warned them of the dangers they face.
Over the years the evil villains have been getting stronger and have been on a mission to ensure that the magical ‘Blue Trees’ are kept away from the people of Earth. These ‘Blue Trees’ provide an energy source that helps people stay strong and free. By keeping the ‘Blue Trees’ to themselves, evil villains ensure they are the ones with all the power and that mere mortals will need to work for them.
There is, however, a team of Superheroes who are able to defend themselves against the villains and who have become guardians of their own ‘Blue Tree’ forests. They have been using the power from their Blue Trees to help others and make the world a better place to live in.
Why have I told you this little short story?
Talking about money is generally a bit boring. I wanted to think of a new and more engaging way to help parents talk to their kids about money.
The fictional story above is in fact very much applicable to the real-world and money.
In the real world, you can think of money as being like a tree’s seeds. If you plant (save or invest) those seeds they grow into Blue Trees. The evil financial villains are different ways people can lose their money (stopping them from planting their seeds). They come in the obvious form of people taking money from us (con-artists or companies ripping us off) or more subtle forms like inflation or, our desire to be lazy when it comes to managing money.
The need for our kids to become Financial Superheroes is increasing as the amount of money they can rely on to protect them is reducing (the forcefield is weakening). At the same time, they are likely to need to have more money (Blue Trees) than ever before as evil (financial) villains are getting stronger.
If our kids understand what these villains are (what can take their money away), they can form Superpowers to overcome them so they instead save and build their wealth (have their own ‘Blue Tree’ forest). Those that have a ‘Blue Tree’ forest and know how to protect it are the ones who can proudly call themselves ‘Financial Superheroes’.
In this blog, I set out two simple actions you can take to start your kids on the journey to become Financial Superheroes!
Before we come to these two simple actions, let me first explain the reasons why our kids need to become Financial Superheroes more than any generation before them.
Our kids will require more money than generations before them
Home ownership is declining significantly in younger generations as housing costs skyrocket. It’s extremely difficult for young adults to get on the property ladder. Many are still living with their parents to save up for their own property (in fact 79% of parents of young adults state a need to support their kids financially). This problem is unlikely to go away any time soon.
The cost of tuition is also increasing at an alarming rate. Many of us will however continue to encourage our kids to go to university in order to access higher education and a more lucrative job. This means that when our kids reach adulthood, they could be starting with a higher level of debt compared to any other generation.
Our kids will have less pools of money to rely on than generations before them
To set the scene, let's consider our parents’ generation (those that are now grandparents to our kids). When they retire (or retired) they can typically rely on three pots of money to help them financially:
Basic pension from the government (in most developed countries)
Company pension (in most cases a generous benefit)
Savings (their own plus any inheritance they may have received)
With these three pots of money their "baby boomer" generation can enjoy retirement.
Now let's look at our generation. We have the same three pots of money but with significant changes:
Basic pension from the government – but we have to wait until we are older to receive it
Company pension – but less generous as these companies are still having to fork out large amounts to cover the pension pots already committed to our parents
Savings – but there will be less coming from inheritance as our parents and grandparents live longer and therefore spend more during their lifetime.
The above means that, all else being equal, we'll have more financial challenges than our parents.
You can probably see where this is going if we then consider the next generation, our precious kids. Firstly they will likely still get a government pension but no doubt will be over 70 before they can access it. Secondly, companies will continue to reduce retirement benefits as they look to control costs (I should know, I worked with many large corporate retirement funds). Thirdly there is ‘savings’. Our kids are unlikely to be able to rely on receiving inheritance from us as we'll need all our money (and money from our parents) to ensure we survive through our long retirement and to fund old age care costs. We are already seeing our parents generation releasing money from their houses via equity release schemes so that they can meet their financial needs, so even our family home may be gone.
Our kids will have to have their own savings to survive. They will have less money than previous generations but yet need more than them.
Our kids could be more stressed
Money is already the #1 cause of stress in adults. If we don't help our kids, they are likely to face stress more than any generation before them. Money related stress doesn't just apply to young adults from underprivileged families, it applies to people of all backgrounds. Kids from rich families that never learn how to manage money will find it stressful to look after.
Money doesn't necessarily make you happy but not having money or losing money can certainly bring unhappiness.
This is why we need to make our kids Financial Superheroes.
The two simple actions you can take to start your kids on the journey to become Financial Superheroes:
Action 1 - Start saving for them now - and I mean right now!
It doesn’t matter what form of savings you make initially, just start saving. This can be opening a bank account, savings account or investment account. People say they “haven’t got around to doing the admin of setting up an account” for their kids. If that’s you, then just get a money box and start putting cash in it or create an “I owe you” (“IOU”) on a piece of paper or in a spreadsheet for them. We can discuss the best ways of saving later but right now please commit to saving for your kids.
At this stage it also doesn't matter how much you are saving for them. Anything is better than nothing. Only save what you can afford but look to save something once a month. Over time this money can grow and you can top it up with any gift money they get from friends and family. The key is to start with something, regardless of amount, as this will form a habit which your kid will learn from.
To give you a flavour of the financial impact this could have on your kids, let’s look at an example. If you saved £20 per month (roughly the cost of buying a coffee a week) for your kid from birth until they were 18 they could have:
£4,320 if you just put the money in a box, or
£5,700 if you saved the money in a bank account getting 3% pa, or
£8,400 if you invested in a simple investment fund (assuming 7% pa return).
These are material amounts to help start adulthood. It also doesn't account for any money they save themselves or get as gifts from friends and family over time. Small amounts of savings can lead to a large amount when they become adults. It will provide them with an amazing start from a financial perspective. How many of you reading this would have benefited from such amounts when you reached 18 years old?
OK. Let’s take a pause here. I want you to state out loud that you are going to commit to action 1 and start saving for them now. Do whatever is quickest and easiest for you right now - no excuses. Take out some money from your wallet / purse and say that’s for your kid(s) - put it in a box or write it down.
As I said earlier, you can refine how you save later on.
Right that’s done! You have now completed action 1 towards ensuring that your kids won’t be part of the worrying statistic and are on their journey to becoming a Financial Superhero. Well done - you are doing more than most parents out there. Feels good right?
Now on to action 2 …
Action 2 - Commit to telling your kids about saving
The next action is equally as easy and quick but much more important.
Tell your kids that you are saving for them and commit to giving them updates on their savings over time.
Clearly there is a lot more you can do to educate them but just committing to updating them is such a big step.
By witnessing you saving for them your kids will learn a key life lesson. Most adults who are good with money will refer back to what their parents did. You should therefore make sure you let them know what you are doing.
If you have set up a bank account for them with automatic payments, put in a reminder each year to tell them how much is in there. Try and be creative to make it fun. For our kids, we don't refer to money but replace money with trees. We tell them we are helping build a 'forest' and each year we tell them how many trees they have in their forest. They can then visualise what this looks like.
Saving for your kids in secret doesn’t teach them anything. They will get one lesson on the day you hand the savings over. At which point it will be like winning the lottery for them and we know that lottery winners don’t always keep their money! If your kids see their money (or ‘forest’) has grown over a long time they are less likely to chop it down and more inclined to nurture it and just take some seeds.
Telling your kids about their savings also makes you accountable to look after their money. I’ve heard stories of parents who have dipped into their kids’ savings or piggy banks. Once they know you’re less likely to see this as an option (after all, it’s far easier to take something from someone who doesn’t know they have it in the first place).
Lastly, by them witnessing you saving, it will hopefully trigger them to take an interest in money, ask what they could do with it, and how they can grow it and take ownership of it.
Finance isn’t widely taught in schools so they need to learn from somewhere. There is a lot of educational material out there to help you and your kids build knowledge.
OK - have you now committed to action 2, to tell your kids what you are doing? Once you’ve told them, you are a Superhero Parent and your kids are on their way to becoming Financial Superheroes. You might be thinking that a lot of parents must already be doing this but in fact that is not the case at all. It’s not clear how many parents are saving for their kids (action 1) but of the minority of savers only 1 in 5 tell their kids about it (action 2). So if you do take both actions then you are definitely ahead of the vast majority and having given your kid a clear advantage. Well done! Tell your friends and have a party. Let’s increase the percentage of parents saving!
That’s two super simple actions that will make a massive difference to your kids' life. Please don’t underestimate what you’ve just done. Small actions, yes, but which will result in a powerful outcome. Just watch those savings grow and the knowledge your kids gain.
Continue the journey towards your kids becoming Financial Superheroes
Please don't stop there. The next steps in the journey are to:
Consider the best ways to save (see our blog here)
Find engaging ways to tell your kids
Educate them to take responsibility for their savings