Staff Reporter
By Peter Dougherty
WHAT large financial risks do you currently face? That your investment portfolio might suffer losses if there’s a sudden stock market downturn? Maybe, but oftentimes your biggest financial risk occupies the same house as you and calls you “Mom” or “Dad”.
That’s right. Regardless of where your children are raised or educated – the UK, the US or Spain – it’s often challenging to teach them financial responsibility. Few kids know how to resist the strong influence of peer pressure on their spending habits, or to avoid the troubling temptation of credit card debt. Fewer still demonstrate a natural inclination to be thrifty with money.
Nor can we count on schools to help. Personal finance education is not universally required in the UK: it varies significantly across England, Scotland, Wales, and Northern Ireland. In the US, only 26 of the 50 states require high school students to take a personal finance course. In Spain, although financial education exists in high schools, it’s seldom taught as a distinct subject – it’s often mixed into optional courses and through voluntary programs.
Thus, the task of teaching our children the value of money and the importance of saving often falls on parents. Although I’ve worked 25 years in the financial sector, I think only two lessons are worth passing on to your kids: spend less than you earn and start now.
Spend less than you earn
The fundamental principle of money management is that you need to spend less than you earn. That means the most important financial skill a child can learn is the ability to delay gratification. However, this is frequently a difficult skill to acquire. To that end, it is vital to give youngsters financial responsibility. It can be as simple as giving them a small allowance at a young age. They’ll likely buy candy with the money. As they get older, you can elevate this to a clothing allowance. Maybe even help them set up a budget. Eventually, open a real savings account for them. The objective is to get your kids to make tough financial decisions themselves before they go out in the world and need to do so. You should try to set up a system where instead of you saying “no”, your kids have to say “no” to themselves.
Start now
It’s never too early to introduce children to concepts like earning, saving, and investing. It’s unlikely you can prevent your kids from making significant financial mistakes in their lifetime. But it is much better if they make those blunders while they’re young and the sums involved are modest.
Storytelling is a good first step. It can introduce children to the financial priorities and values that are important to your family. And conversations are typically more effective than lectures. Stories are a great way to pass lessons from one generation to the next.
Some skills are like secret recipes — because few school cafeterias are serving them, you should help your kids learn to cook for themselves.
Peter Dougherty is a Financial Planner at BISSAN Wealth Management in Spain. He holds an MBA in finance from Columbia University in New York and an MS in Spanish taxation (Máster en Fiscalidad y Tributación) from Nebrija University in Spain. He is certified as a European Financial Planner (EFP) in Spain and as a Chartered Retirement Planning Counselor® and Investment Adviser Representative in the United States.
For more information: https://www.financial-planning-in-spain.com
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