Generations from Baby Boomers through to the new Gen Z seem to be stuck in a loop of financial failures passed down from their parents. The cycle of not saving and not having enough to retire on seems to be genetic and engrained in our education. Currently, youngsters are still not saving enough for retirement or are leaving it too late.
Our grandparents didn’t have enough to retire on, our parents don’t have enough to retire on, and we are headed in the same direction. Will our children do better?
To avoid a constant sandwich generation, we need to break the cycle and change the way we teach our children about finances. It starts with us changing and setting the example.
What can we do to break the cycle?
• Start early and start small – the first thing we can do, is start a retirement savings for our young children. Contribute the bare minimum to it. Premiums are very low, but the impact will be great. This gives their retirement pot about 50-60 years to grow. When they are older, encourage them to contribute to it as well. This will ensure they are comfortable in retirement.
• Make them take out a pension plan with their first salary – create the retirement saving habit. Let your adviser calculate how much they will need to retire based on their first salary.
• Get them a piggy bank and make saving a habit – If they do it from a young age, it will become the normal way of doing things for them. Let them save part of their allowance in the piggy bank for something special.
• Teach them to budget – instead of just buying them everything they need, give them money and get them to buy it themselves. Let them compare prices and budget the money. e.g. give them a clothing budget and let them go buy their own clothes. They need to see the value of money and the cost of living.
• Let them spend their own money – if they spend their own money, they will appreciate its value and how quickly it disappears.
• Make them earn their allowance – give them chores and responsibilities to make them realise that they need to work for their income. Money is not limitless.
• Educate on retirement – get your children involved in your retirement plans. Let them see the importance of saving for retirement. Show them how your grandparents are struggling financially.
• Get them to make financial decisions – When they are teens, let them choose the funds that their retirement annuity is invested in. Make an appointment with your financial adviser to educate them and show them how funds work.
• Show them the stats – Let your adviser show them the power of compound interest.
• Give them financial responsibilities – when they are in their teens, let them be in charge of the grocery money for a week to teach them how to work out a budget and manage a household.
• Be transparent about your finances. Show them your bills and what things cost.
It’s not a case of depriving your children of anything, it’s a case of teaching them how money can work for them.
Chat to your deVere Acuma adviser about breaking the cycle and starting a retirement/savings plan for your small children. [email protected]
Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere Acuma adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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