It’s fair to say that in many ways, today’s youth get a raw deal when compared to their parents’ generation.
For example, many young people currently earn less than the generations before them did at the same age. They also carry more debt (especially student debt). Fewer young people own homes than their parents’ generation did at the same age. The retirement prospects of a lot of today’s young people are also bleak. Some are possibly contributing to pension schemes that will most likely not be as generous as those of their parents.
There’s no doubt that outside factors, such as stagnant wages and skyrocketing house prices, have contributed to the problem. But it may also be due to the fact that today’s young people are not taught how to properly manage their money or make it work for them.
With this in mind, experts at AJ Bell’s investing app Dodl have outlined some of the steps needed to change the current trajectory of young people’s finances and ensure a brighter financial future for them.
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Securing a brighter financial future for young people
1. Teach them financial independence from a young age
According to the experts at Dodl, the earlier young people start to learn about financial independence and responsibility the better.
Getting used to being financially responsible from a young age is important. It can teach children to be more responsible with their spending when they are older and have more financial responsibilities.
Giving children an allowance can instil valuable and long-term money habits, such as:
- Budgeting: kids can learn that money has limits and it is necessary to budget.
- Saving: they can learn that by spending less money, they can save up for the things they want.
- Delayed gratification: kids can learn that it takes a long time to save money and very little time to spend it.
2. Parents as positive financial role models
Parents can help their children become better at managing money later in life by being positive financial role models. This entails openly discussing money with them and allowing them to observe how you, as a parent, manage your own money.
For example, if your children see you using a monthly budget to track and manage your spending, they are more likely to develop similar financial habits as they grow older.
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3. Opt for more than a basic bank account
There is a wide range of financial tools and accounts available these days to help you and your children manage money effectively. For example, there are accounts designed specifically for children and for students.
Do your research and identify the tools and accounts best suited to your and your children’s circumstances.
4. Reduce reliance on the bank of mum and dad
Parents should, of course, always strive to help their children financially wherever possible. However, there needs to be a limit. Too much help can damage the way children view and manage money.
If a child knows their parents will always come to their aid when they run into financial difficulties, they will never learn to be financially responsible.
As the experts at Dodl explain: “By leaving them to stand on their own two feet (to an extent), it will allow children to learn the proper value of money and see that they need to spend and save carefully.”
5. Start investing habits early
A Junior ISA can be a fantastic way to introduce children to the concepts of long-term savings and stock market investing.
With a junior stocks and shares ISA, for example, you can invest in companies that your children are familiar with. They won’t be able to access the money until they are 18. However, as they grow older, they will be able to track how their investments are performing. In the process, they can learn valuable investing lessons that they can apply later in life.
6. Make information about stocks and shares more engaging
Investing in stocks and shares is one of the most reliable ways to build wealth, particularly over the long term. Unfortunately, it has long been considered an older person’s game. This needs to change.
If young people are taught to invest as early as possible, they’ll have a longer time to benefit from the stock market’s potential long-term returns.
To encourage young people to start investing early, the current information on investing needs to be packaged in a way that’s simple, straightforward and appealing to them.
This is exactly what investment apps such as Dodl are attempting to do. These kinds of apps can be a good starting point for teaching young people how to invest.
