Tag: financial literacy

In 2022, the average UK child received £4.99 a week in pocket money, but why is pocket money important?

Appreciating the Value of Money

Giving your child pocket money can help them to fully understand and appreciate the value of money. This can then help them understand why you actually go to work, and why they should turn the lights off and not leave the water running. This is because you can explain how things like this cost money, and by giving them a small amount of money to manage themselves, they are more likely to let this sink in, as they have ‘real experience’ handling it.

Teaching Responsibility

Giving your child pocket money can teach them responsibility, as they have to make decisions on how to spend their money and deal with the consequences if they spend it all at once.

This may also mean that they’re more likely to take care of their things if they have saved up for them and bought them with their ‘own’ money.

Preparing them for their Financial Future

Pocket money can help children feel independent and start building up money management skills. Pocket money reinforces the importance of saving, of thinking before you spend and of weighing up your decisions, rather than buying things on impulse. It can help children understand delayed gratification, and how some things you have to save up for to get.

These things mean that you can use pocket money to help your child to start to become financially literate from a young age. For conversations you can have with your child to help them achieve financial literacy, click here.

ING International Survey

ING’s International Survey in 2014 gathered respondents from 13 different European countries.

Here, we can see the response to one of their questions, “Why do you give your children pocket money?” As you can see, there were an array of reasons why parents gave pocket money, most of which fall into the bracket of trying to help their child achieve financial competence.

This tells us what people wished to achieve by giving their children pocket money, but what was actually achieved?

From the report’s findings, we can see that respondents who received pocket money as a child were more likely to show financial competence in 4/6 of the money habits questioned about. However, we cannot assume that pocket money was the sole cause of this trend, as other factors will have inevitably been involved which will have affected each respondent’s financial tendencies.

There appears to be a social taboo on talking about money. Many of us find talking about our personal finances strange or uncomfortable… but we don’t need to! In fact, talking about money can be really important, and here’s why…

Goodbye Shame, Hello Freedom

Starting open and honest conversations about your finances can help reduce any stress or shame you might be feeling.

Many people face financial struggles and have money worries. In fact, Wagestream’s 2022 Cost of Living Report found that 70% of UK employees are now worrying about money. Despite this, we often don’t realise that a lot of people are dealing with the same issues as us.

Talking about money can help reduce some of the stigma around financial converstaions and help you realise that you are not alone.

Sharing Tips

Talking to people you trust about money can open up a safe space where you can share any tips with each other.

Is there a certain tool they use to help them budget? Do they have a method they use to reduce spending?

You don’t have to adopt their strategies yourself if they don’t seem right for you, but it’s a free and useful way for you to generate new ideas that you hadn’t previously considered.

Talking about your Salary

Talking to people in similar jobs about your income can help you see whether you are being paid enough for your work. This may encourage you to seek a new employer or request a salary increase, which would in turn improve your financial situation.

A Helping Hand to the Next Generation

Talking about money can improve the financial literacy of your children. After all, how can they be expected to manage their finances and make responsible and beneficial financial choices if they’ve always been taught to avoid them?

You can start by introducing them to the money basics, so that they grow up to feel confident and assured when dealing with financial situations.

Talk to your Partner

Talking to your partner about money can help you avoid arguments further down the line.

Are your financial goals aligned? What are both of your attitudes to money?

You don’t have to have the exact same attitude to money but it’s important to understand your differences. You can be on different pages, but not a different book… failing to talk about money together can create resentment as you might fail to understand each other’s financial choices.

Additionally, if you have a joint bank account or both have your names on your mortgage or bills, any financial mistakes either of you make can affect the credit rating of the other… so talk about it!

Stay Judgement-free

When having these conversations about money, it’s important to let each other speak honestly and openly, without interruption or fear of judgement.

Creating this safe space is particularly important if you think someone you know might be being financially abused, as victims often struggle to seek help.

With apps like Go Henry claiming to help children learn how to effectively budget, we have decided to have a run through the benefits and drawbacks of using technology for financial education

 What is the Go Henry App?

The Go Henry App markets itself as an application aimed at increasing children’s financial education. It claims that

“kids learn to budget”

through use of its services. For £2.99 a month, parents can set their children a monthly allowance in the form of a pre-paid debit card

What are the benefits of this?

Parents can set spending limits so that their children have to learn how to budget

Parents can set chores which, when completed, gives their children extra spending money. In a way, this mirrors the “real world”, preparing children to get used to having an income and expenditures

The app allows parents to maintain full parental control yet also gives children the freedom to make their own financial decisions

It is also a good visual way for children to see their money in one place, as the app has a pie chart showing spending habits, so that they understand how they are proportionately spending their money

Go Henry’s spending charts

What are the drawbacks?

Parents can block and unblock cards, and whilst this sounds like a positive, it really just defeats the whole purpose of giving children financial freedom. Parents can also give their children more money through the Go Henry App when they run out. This will only serve to make children accustomed to the idea that there will always be a reserve of money when they run out. Therefore, they may be more likely to use their overdraft when they are older and get their own bank account. This said, the top-up is limited to once a month per child

The card on the app works like a regular debit card so it is difficult to see its usefulness. If it was a free app this would be more understandable, but for £2.99 a month it seems like a bit of a waste of money

There is already a problem with children becoming too reliant on technology. Sometimes it isn’t completely necessary for them to be using it- why use an app when you can just use a debit card? There is something to be said for teaching children how budget with their pocket money in real coins and notes, as it can actually help with their mathematical skills. This said, with almost everything being online now, children will have to become accustomed to things like online banking, so perhaps this is just preparing them for the realities of later life

Why not a hybrid approach?

Perhaps technology should be used in conjunction with financial teaching. This would ensure that children become financially literate, yet also gives them a chance to apply these skills in their spending, with apps like Go Henry. This blended learning is important so that children have personalised instruction and as teachers, we can track their progress and their understanding of financial matters

Red Star has an online course so we are staying up to date with the latest technologies. We also have online systems like our Budget Calculator which is useful for those who prefer the techy side of things! However, online apps alone are no match for our in person, expertly led, financial education services which teach children that finances are more than just numbers on a screen

Found your dream home? There’s far more to getting a mortgage than simply putting a down payment on a house you like. Have a read to find out what else you need to do to have a smooth transition into the next stage of your life

Deposit

Obviously, you will need to have a sufficient amount of money to place a down payment on a house. The recommended minimum deposit size is 20% of the home’s selling price. We recommend  budgeting and saving to help put money aside for this milestone

Avoid your overdraft

It can be worrying for lenders if you’re in your overdraft as it means that you may be unlikely to keep up with mortgage repayments. We recommend staying clear of your overdraft for at least 3 months before applying for a mortgage

Get your paperwork in order

The lender will likely want to see:

  • the last 3 months of your bank statements
  • the last 3 months of your payslips
  • your latest p60 tax form (or the last 3 years of your accounts or tax returns if you’re self-employed)
  • the last 3 months of your savings account statements to prove you can pay the deposit
  • proof of your address (e.g, utility bills or credit card bills)
  • proof of ID (passport or driving license)

Register on the electoral roll

Register on the electoral roll at your current address so that lenders can use its data to help identify you. This can make the process of identifying you far quicker for your mortgage application. It is also an easy way to score points for your credit rating!

Take care of your credit score

Try to avoid applying for credit for the 3 months prior to applying for a mortgage – applying for lots of loans likely reduces the amount that a lender is willing to let you borrow for your mortgage. It is also a good idea to check your credit report before applying to see if you have a good payment history. A good financial track record will make you far more trustworthy in the eyes of lenders.

You should ensure that you aren’t financially linked to people who may affect your credit. If you aren’t in contact with someone anymore, or are now separated, we recommend closing any joint accounts you may have with them. This means that their credit history is treated as separate to yours rather than being taken into consideration when you apply for a mortgage. To be extra safe, you may also want to write to credit agencies and ask for a note of dissociation

It is estimated that 70% of wealthy families lose their wealth by the 2nd generation, with 90% losing this by the time the 3rd generation is reached. A deeper look into why this is the case provides insight into the lack of financial knowledge that is being passed down to future generations

What is generational wealth?

Generational wealth includes any financial asset that is passed down from one generation to the next. This includes more “obvious” assets of property and money, but also covers anything else of monetary value, such as expensive artwork.

 

Why is generational wealth useful?

In a nutshell, wealth enables inheritors to make more choices with fewer restrictions as there is less pressure on financial responsibilities. Instead of living from payslip to payslip, they have the freedom to plan properly for their future without these external pressures.

 

How can generational wealth be created?

  • Investment in the stock market– if excess money is invested in this way, wealth can be built passively with little effort needed on your behalf
  • Investment in real estate– while the housing market is still liable to fluctuations, it is less volatile than the stock market
  • Create a family business to pass down through generations
  • Spend on life insurance– this will act as a safety net to ensure your family are looked after in the event of death

 

How can generational wealth be passed down?

  • Write a will- ensure that all of your financial assets are listed with instructions for each one. This prevents the state from being in control of decisions regarding your assets
  • Set up a trust to transfer assets to beneficiaries- this can help to avoid large amounts of inheritance tax, ensuring that your assets are passed on more efficiently
  • Name beneficiaries for your accounts- attaching a beneficiary to each account will smoothen the process of transferring funds to your family in the event of death

 

Why is generational wealth lost?

Generational wealth is often lost because of a lack of knowledge being passed on from generation to generation about financial matters and the value of money. The generation earning wealth tends to be hardworking, saving well to achieve financial goals. The second generation, whilst living a more financially comfortable life, tend to witness their parents’ struggles growing up, and so have a level of understanding of hard work and sacrifice. The third generation never gets to witness the financial struggle of the first generation, and so may remain ignorant of the value of money, as it is always seen as something that is simply there, rather than earned.

In this day and age, discussing money seems almost “taboo”. Parents are reluctant to discuss their finances with their children, refusing to mention their income or the cost of their expenditures, whether through shame or modesty. This puts their children at an immediate disadvantage; how can they be expected to understand the value of money if they are never taught it?

This poor communication is combined with a lack of shared decision making, wherein wealthy families do not allow the youngest generation input in financial matters. If this generation grows up in an environment where they have never made these decisions, they will be incapable of making them when they take over the family estate in the future.

This is a principle that can also be applied to families that don’t possess generational wealth. Financial education is not just for those with lots of money- it is important for everyone, because we all have to deal with financial matters.

What can financial education help you with?

Financial matters are unavoidable – they dominate many aspects of our lives, but they don’t have to be defeating. At Red Star, we are dedicated to providing meaningful financial education to anyone who wants to learn to make balanced and calculated financial choices. This includes a whole host of things, such as:

• Debt management – helping you clear your debts at a manageable pace
• Budgeting – helping alleviate the stress of paying bills, create financial stability, and build up savings for emergencies
• Investing – giving you the ability to make informed and balanced investment decisions
• Planning for the future – helping you understand pensions and wills
• Understanding taxes – so you know what you need to pay and why
• Understanding mortgages and property purchases – so you feel comfortable moving into a new home

These things can be overwhelming, especially when there is so little formal teaching on them. The national curriculum stipulates that secondary schools must teach some financial education as part of citizenship and maths. However, the information given to pupils is lacking, with few schools effectively providing students with financial knowledge. Despite the fact that financial matters are an inescapable part of life, the government seems to expect us to face them unarmed, with very little prior knowledge. However, at Red Star, we believe that everyone should have the opportunity to become financially literate, in order to feel confident in managing their current and future financial matters.

The Difference between Wealth Creation and Financial Education

When people have excess money, they can start to build up savings. Wealth creation is when these savings are invested to create a new source of income. There has been a growth of groups and individuals promoting “get rich quick” schemes, espousing that money can be generated quickly through easy investments. Unfortunately, it is not this easy! A prime example of these schemes is forex trading, wherein individuals trade currencies by speculating which currency they think will fall in value against another. This is incredibly high risk, especially for those who have less money to gamble with in the first place. Investment always involves an element of risk, but this should always be calculated and manageable. Financial education provides you with skills that help you make these difficult decisions, rather than going in blind.

Financial education can indeed help create a foundation for future wealth creation, such as through teaching you how to minimise the risks that come with investing your money. However, it spans far beyond this; it offers you the ability to be self-sufficient and confident in facing financial issues in your day-to-day life. This covers all of the mundane things of ordinary life, like car insurance, taxes, mortgages, and the weekly food shop. It also extends far further to help you with future planning, such as setting up a business, pension funds, life insurance and making a will. As you can see, financial literacy is essential for most aspects of life. Although we wish we could, we can’t magic money out of thin air, but what we can do is help you feel confident in managing the money that you do have.