What’s the first step in good Financial Planning? Communication!
In many families, having a frank discussion about money remains a taboo. Many married couples reportedly don’t know how much money their spouse earns. Well-off parents can sometimes shy away from letting their children know too much about their wealth, in an effort to prevent them becoming complacent about what they might inherit in the years to come and losing their work ethic.
Teaching the basics
With financial issues rarely discussed, children and teenagers can sometimes find it hard to manage their money when they get older. Involving them in decisions that impact the family finances will help them understand that sometimes choices have to be made in order to keep within a budget. Knowing how interest rates affect the amount you have to repay on a loan or credit card is a valuable lesson that will stand them in good stead in later life.
Explaining the positive effects of compound interest on money that’s saved over the years can spark their interest in opening their own savings account, especially when they hear that Einstein referred to compound interest as “the eighth wonder of the world”.
Although retirement is a lifetime away, it’s worth talking about pensions too; ideally, everyone should start contributing to their pension the day they begin work, sounder standing the need to save for retirement as early as possible makes good sense. A building society account is a great way to teach children about regular savings, giving them an opportunity to watch their money grow over the years.
Looking to the future
Experiencing difficulties in talking openly about money isn’t a problem confined just to teenagers. The Bank of Mum and Dad is often called upon to help their offspring get on to the housing ladder. Discussing as a family the impact this could have on their living standards in retirement is an important conversation for parents to have.
With the older generation living longer and potentially needing help with their finances in their later years, it’s important for children of any age to be able to communicate effectively about financial issues with their parents. With more families finding themselves drawn into the Inheritance Tax net, effective planning strategies can reduce the amount of tax payable.
Taking the time to discuss important matters like Wills and Lasting Powers of Attorney with other family members will help to ensure that the right plans are in place to safeguard family interests and help prevent misunderstandings, squabbles and administrative problems arising later on.
