With three-quarters of Britons struggling with basic financial literacy, many individuals, even in adulthood, lack essential money management skills. While financial advisers can guide adults, starting financial education early can put your children in a great position for their financial future.

Why schools don’t teach financial literacy

Sadly, most schools don’t cover essential financial topics such as budgeting, taxes, or mortgages. This often leaves young adults unaware of the financial responsibilities they’ll face as they enter the workforce. By discussing finances with your children early, you’ll help them develop a sense of responsibility, teaching them how to manage money wisely and understand its value.

Starting the conversation early

There’s no set age to start teaching your children about money, but earlier is better! Simple life events, like birthdays or holidays, provide excellent opportunities to introduce them to financial concepts.

Practical ways to teach financial skills:

  • Start simple: Explain where money comes from, how it’s earned, and why saving is important.
  • Use pocket money: Help your child save money by giving them pocket money and teaching them how to budget.
  • Money management lessons: Give them chores with monetary rewards and allow them to make spending decisions.
  • Teach saving: Encourage them to save a portion of any monetary gifts they receive and open a junior bank account for them.
  • Budgeting practice: Take them shopping with a set budget and teach them how to prioritize spending on “needs” over “wants.”
  • Understanding debt and credit: Introduce them to the concept of debt, credit cards, and how to manage them responsibly.
  • Learn about mortgages and taxes: Explain how mortgages work and why taxes are essential.

Building Financial Independence

As your child matures, introduce more complex financial concepts, such as the 50/30/20 rule for budgeting—50% for needs, 30% for wants, and 20% for savings. Encourage them to take part-time jobs as they grow older and use these opportunities to reinforce the importance of earning and saving money.

By teaching your children good financial habits from an early age, you’ll set them up for a future of financial independence, helping them make smarter decisions when it comes to spending, saving, and investing.

Online resources are a great tool to help

Here are some great online resources that can help you and your child to learn:

12 ways to teach your children about money, Barclays

Teaching kids about money, The Times

Best junior stocks & shares ISAs, The Times

Top children’s savings accounts, Money Saving Expert

Best children’s bank accounts 2023, Which?

Online resources are fantastic, and a great place to start – however, we’d also recommend getting in touch with our knowledgeable team of advisers for some additional, more personalised advice.

How to teach your children good financial management skills

Are Junior ISAs worth setting up for your children?

Introduced in 2011, Junior ISAs (JISAs) provide tax-free savings options for children, and today, over 1.2 million Junior ISAs are regularly paid into across the UK. With more than £9 billion invested in Junior ISAs, these accounts are becoming an increasingly popular way to save for your child’s future. But are they worth setting up? Independent Financial Adviser, Oliver Pescott Frost, explores the benefits of Junior ISAs and whether they should be part of your child’s financial planning.

What is a Junior ISA?

A Junior ISA is a long-term, tax-free savings account for children under the age of 18. For the 2024/25 tax year, the annual contribution limit is £9,000. While Junior ISAs are designed for British citizens, even if your child lives abroad, they may still be eligible if they depend on you as a “Crown servant” (for example, if you’re part of the armed forces or a civil servant).

Types of Junior ISAs

There are two types of Junior ISAs:

  • Cash Junior ISA: Money is saved in cash, and interest earned is tax-free.
  • Stocks and Shares Junior ISA: Money is invested in the stock market, with tax-free growth on any investment gains.

Your child can hold one or both types of Junior ISA, provided the £9,000 annual limit is not exceeded, as exceeding this could trigger Capital Gains Tax. While parents or guardians must open the account, the funds are in the child’s name and can only be accessed by them when they turn 18.

Why set up a Junior ISA for your child?

Setting up a Junior ISA early in your child’s life can offer significant financial benefits as they transition into adulthood. Here’s why a Junior ISA could be a great choice for your child’s future:

  • Start saving for key life expenses: Junior ISAs can help cover major expenses like learning to drive, higher education, or even purchasing a home.
  • Tax efficiency: Junior ISAs are highly tax-efficient, allowing savings to grow without the impact of income tax or Capital Gains Tax.
  • Long-term investment growth: With a Stocks and Shares Junior ISA, your savings can grow over time through investment, though it’s important to understand the associated risks.
  • Cash ISA protection: The money in a Cash Junior ISA is 100% protected, meaning it cannot decrease in value.
  • Locked-in savings: The money in a Junior ISA is locked in until your child turns 18, ensuring that it is saved for their future, and no one can access it prematurely.
  • Educational opportunity: Junior ISAs can also serve as a tool for teaching your child the value of money and the importance of saving.
  • Inheritance tax benefits: Starting early with a Junior ISA can help reduce future inheritance tax liabilities.

Where can you set up a Junior ISA?

You can open a Junior ISA with a variety of banks, building societies, credit unions, friendly societies, and stock brokers. At Matthew Douglas, we specialize in making your investments as simple and stress-free as possible while maximizing returns and minimizing tax liabilities. Contact us today to learn how we can help you plan for your child’s financial future.

Contact us today to find out more about how we can help you and your family.