The following is a transcript of a bonus episode of The Pension Confident Podcast - personal finance tips for parents part two. You can listen to this bonus episode or scroll on to read the conversation.
PHILIPPA: Hello and welcome to another bonus episode of The Pension Confident Podcast and this time we’re bringing you part two of our crash course for parents! Want to teach your kids about money? Well listen up because we’re covering everything from pocket money economics to talking them through how debt works.
If you haven’t heard part one yet don’t worry, you can find it right now on our podcast feed so have a listen, wherever you get your podcasts.
And before we get into part two, just a reminder that anything discussed on the podcast shouldn’t be regarded as financial or legal advice, and when investing your capital is at risk.
OK, let’s go and we’re starting with the basics. Back in episode eight, we heard from Personal Finance Journalist; Laura Miller, Co-Founder and CEO of NatWest Rooster Money; Will Carmichael, and Emma Maslin, who’s a Certified Money Coach, a Mentor, and Founder of The Money Whisperer website. She’s also a PensionBee customer. We asked them what they wished they’d known about money when they were kids - and here’s what they told us.
EMMA: Oh, I think compound interest has to be the thing that if we were teaching our young people this, we’d be in a situation where lots more people would be able to enjoy their later life.
LAURA: Just explain what compound interest is.
EMMA: Compound interest is where your interest earns interest on itself. So, if we leave our money in the bank and allow it to grow with the power of interest, leave the money that’s there to continue to grow. It acts sort of like a snowball effect. Now, we live in a society where we’re encouraged to consume, consume, consume. So we end up not leaving our money in the bank to do this. If we could encourage and educate children to do this, and certainly if I’d have learnt that when I was younger and not spent so much on going out, and on handbags, and shoes, I think I’d be in a better position now.
LAURA: Will?
WILL: Well, I’d say Emma’s definitely taken my top one, which is compound interest. I think actually, the fundamental one is talking about money. It’s the biggest lesson of all. A lot of people’s first conversation is a negative one. And I think that, that journey of actually starting early and talking about it is the best place. It’s where everything starts.
PHILIPPA: But who’s job is it to actually open up those conversations? And how do you do it? Here’s Laura and Emma again.
EMMA: Children are like little sponges and are building those habits, and those behaviours, and those attitudes towards money in those really early formative years, before they’re about seven years old. So, if you think, “who are the primary caregivers at that time?” It’s the parents. So, whether we like it or not, as parents, we have a primary role in this period of our children’s life to really make a difference.
LAURA: So this is the pocket money conversation, surely? That’s the first time that most children will interact with money, or maybe they’ll get £20 in a birthday card sent to them. How does that conversation go with your children?
EMMA: In my family? I have two children, two girls, eight and 10. And they’re very, very different already. So I find the whole psychology of money really, really interesting because outwardly we’ve taught them the same. We give them the same opportunities and yet I have a real saver, and I’ve one who’s a lot more balanced. She’s happy to save some and spend some. So it needs to be tailored to the individual child as well. But certainly in our house, we encourage the girls to have different pots for different things that they might want. So we have some money saved for things that they want in the future. So we’re teaching them that really important concept of delayed gratification, but also balancing that with the healthiness of understanding that, you know, there are things that they might want and need right now. And it’s perfectly OK to go out and spend the money.
PHILIPPA: Of course it’s not just saving that kids need to know about, it’s debt too. So how can you teach children about both sides of that coin? Here’s Will and Laura again with their parenting pro tips!
WILL: My two children are a little bit younger, so five, and three. So, we’re sort of coming out of star charts and going into early pocket money. We’re at the point where when it’s gone, it’s gone and if you want it, you’ve got to save up for it. I think that that debt piece, what we see through customers on Rooster is that particularly with our tracking tool, which is, you don’t make actual deposits, we act as a kind of I.O.U basically for them to go out and get something, and then some of those parents go, “OK, you need to pay me back for that”. Now, they don’t apply a reverse interest rate on that. But you know, it’s that opportunity to have a conversation going, “OK, if you really want to get that upfront, I’ll cover that, but you’re going to pay me back for it”.
LAURA: At £1 a week, or whatever it is? My five year old niece has an iPad, and knows how to use it. So, I’m sure she’d be a prime candidate for a money app as soon as my brother gets one for her. Because they already know how to use the tools, they just need the direction.
PHILIPPA: If you have kids, you already know how hard it can be to juggle a family and your finances. Lynn Beattie, Personal Finance Expert and Founder of the Mrs MummyPenny website; knows all about that having taken a tough but inspiring road back to financial stability after she got into major debt.
PHILIPPA: I need to ask Lynn, how did you pay that debt off?
LYNN: I basically stopped my life for like two years, which was really, really hard.
PHILIPPA: So what sort of things are we talking about?
LYNN: I didn’t buy any clothes, I didn’t buy any makeup, and I love makeup! I had to have the conversation with my children, which was really, really hard, which I know a lot of people shy away from.
PHILIPPA: How old were they at this point?
LYNN: 11, nine and six.
PHILIPPA: Kind of old enough to understand?
LYNN: Old enough, and I’ve always been open and honest with my children about money. I said something like, “at the moment, Mummy has some debt and I have to work on paying it off. So it’s going to mean that we’re not going to be able to go on holidays”. I had things like ‘no spend months’ which were really quite difficult. It was short-term pain for long-term gain.
PHILIPPA: How long did it take?
LYNN: It took two years to pay it off. I’ll never get into that position again.
PHILIPPA: A good lesson for your kids too?
LYNN: Exactly. Good lesson, yeah.
PHILIPPA: If you’re listening to this and feeling you really want to set your own kids on the right road financially, what can you do today? Here are Laura, Emma and Will again with their top ‘do it now’ tips.
LAURA: OK, so what should caregivers take away from this and put into action with their children?
EMMA: One of my big things is differentiating between being rich and being wealthy. You know, we should be encouraging children to understand how money works. I think our children are growing up in a world where being rich is aspirational to them. They see social media influencers, they see particularly recently, you know, these people peddling crypto, “Come follow me, give me your money, and I’ll make you rich”. They’re growing up in a world where home ownership is going to be tricky for a lot of them. They’re living in a different world to the world that we grew up in, and their grandparent’s generation grew up in. We need to help them understand that, you know, there are no real ‘get-rich-quick’ schemes, and help them build the habits, build the behaviours to enable them to build wealth slowly, which is how it should be done. Build it slowly and why? Why do we want to do that? You know, it’s all about goals. What do we want out of life? Ultimately, money is an enabler. So going back to basics, you know, what is the life that would make you happy? Because personal finance is very personal, you know, we’ve all got different goals. So being aware of that’s so, so important.
WILL: So true. Mine’s a very simple one which is, talk about money and start early.
PHILIPPA: As any parent knows, our kids can teach us too. Here’s Lynn again with a really touching story about how one of her kids helped her resist an expensive impulse purchase when she was really finding it tough to stick to her money-saving plan.
PHILIPPA: It’s hard, isn’t it? Because there’s that social pressure, particularly with friends. You feel like you’re being really mean if you don’t spend the money. I’m thinking about things like children’s birthdays as well. If you have kids, like I do, you feel that pressure to spend. And when you see other people are spending big on their kids’ parties, you think maybe you should be doing this too.
LYNN: Yeah, I think the comparison of what other people do is really tough when you’re a parent. I’ve got three boys and they’re getting a bit older, and presents seem to get more expensive as they get older. What I find is, I might buy a couple of things and say, “oh, I’m going to buy another thing and then another thing”, and then suddenly you’ve blown the budget - if there was even a budget.
PHILIPPA: And did they really need that much stuff? I’m thinking about shopping more generally and it seems to me that half the trouble is that it’s so easy to shop now. There’s a real danger of stacking up debt with over-shopping, isn’t there?
LYNN: I spent an uncomfortable amount of money on a designer handbag last year. It was an emotional, impulse purchase. It’s a really difficult thing to get in control of. I’ll open up - it’s something I struggle with. So, I bought this handbag, I took it home, I showed my kids and my eldest son said to me, “that’s like a third of a holiday”. And just that one sentence made me take that bag back and I got my money back.
PHILIPPA: And that’s it for part two of our crash course for parents! Most important takeaway? Starting early with open conversations about money with your kids can really make a world of difference. If you’d like to hear those discussions in full, you can always go back to our podcast feed and the episodes you need are number eight and number 23. All The Pension Confident Podcast episodes are on YouTube or the PensionBee app if you’d rather find them that way. You can subscribe to the series right now on any podcast app. Meantime, keep an eye on our feed - our next episode will be live at the end of the month.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
