Banner

Using Financial Technology to Guide Your Children Towards Successful Future Investments

In a recent study, a third of young people were found to have poor financial literacy skills1. Lacking the competence to adequately manage their money, and without stable incomes, they had no savings to cover emergencies and were left vulnerable to everyday problems with money, payday lenders and credit card debt.

Being financially literate gives children and young adults a good understanding of how the world of finance works. With sound knowledge of economic principles and armed with critical financial skills, they are then able to make informed, and ultimately profitable, decisions within the limits of their income. In contrast, if they are not being taught at an early age to manage their money effectively, children can grow up to experience a poorer quality of life, troubled by losses and debt, and without being able to enjoy the benefits of lucrative yields from savings and investment.

Technology is undoubtedly a useful tool in financial management and planning, and research shows that young people are open to using digital and mobile apps to monitor their spending and to improve their financial future. Digital tools make it easier to stay on top of your finances and be more in control. As younger people are already comfortable living their lives online, it makes sense for them to add financial tools to their digital world that will help them manage their money and start to make more of it through investment. From budgeting and debt repayment to investing in stocks and planning a comfortable retirement, there are tools to help manage money at every stage of your child’s financial journey.

Of course, as in the real world, there are also financial temptations online that young people should avoid. However, being drawn into a shady Pyramid scheme, or feeling under pressure to donate to a bogus Crowdfunding campaign is far less likely with a good solid financial education. So, before becoming too reliant on budgeting apps and robo advisors, it’s still important to know the fundamentals of finance, such as statistics, probability and the concept of compound interest.

Lessons in Financial Literacy

As you already take an interest in investment, you will be probably be in a good position to help your children with these basic concepts. Indeed, a recent study revealed that 34% of young adults felt their positive habits with money had been influenced more by their parents’ financial behavior than by what they had learned in school2.

Still, many more kids do benefit from learning economics in school and there are good reasons to continue, and increase, the teaching of financial literacy. With today’s reliance on contactless payments and easily available credit, informing kids about the mechanics behind these seemingly magical methods of payment can provide them with invaluable data with which to make informed financial decisions and avoid money worries in the future.

The website CheckYourSchool.org allows you to see if your child’s school offers financial education, and if it doesn’t, or you feel it is inadequate, you can argue for it to be included in the curriculum.

Back at home, apps specifically designed for children can help them learn the value of money by teaching them about earning, saving and spending. They can also remind children to perform chores around the house and once completed, notify their parents so that they can reward them3.

Learning to Budget

Before venturing into the world of investing, children and young adults first need to learn how to budget. Whether they are saving pocket money for completing chores, paying off their student debt or cashing their first pay check, the same principles of good budgeting apply. Don’t spend more than you earn and plan for future costs so you aren’t caught out with unexpected expenses. Without understanding the long-term effects of budgeting and saving money, it can be very easy for young children to spend all their money on candy and, when they are older to waste their first few pay checks on take out food and impulse clothes shopping.

To avoid these blowouts, encourage your kids to use online budgeting tools that can make managing incoming and outgoing money easy. They will keep a check of overall cash flow, balance income and expenses and give a detailed summary of how they are spending their money. If they go over budget, they will receive a timely alert to avoid them getting further off track. Some apps will analyze spending and even provide strategies to cut bills or strike a better deal when shopping.

Automatic Savings

As well as taking the time to research savings accounts individually, several websites will do the work for you and track saving interest rates to help highlight the best accounts.

For tech-savvy young adults who don’t want to spend too much time thinking about their savings, an automatic savings app will round up each purchase to the nearest dollar, and place the money into a savings account. Either connected to their bank account or as a standalone app, some will allow them to set their own criteria for prompting a deposit, but most will simply round up each transaction they make.

In addition to setting aside money to a basic savings account, you can choose an app that allows you to allocate the money into a specific account such as a pension fund or student loan repayment account. Other automatic savings apps will take it a step further by using the money to make investments on your behalf. By setting up a profile with details of your income and tolerance to risk, it will determine what kind of investments to choose for you.

Paying off Debts

A recent survey shows that at the end of last year, young people between the ages of 18 and 29 had the highest recorded amount of total debt for over ten years4.

Without basic financial literacy, not only will young people be more likely to end up in debt, but they will find it harder to get out of it, and won’t have the opportunity to make money through savings and investments in the future.

Obviously, with a good financial education, your kids should be protected from falling into unnecessary debt, but, if they have been tempted to spend more than they make on credit, there are apps that can help stop the rot. Some use the snowball method of paying off the smallest debts first and slowly working up to the heftiest ones. With calculators and visual aids to show you how different techniques and variables will affect the debt, it becomes easier to manage and, eventually, wipe out completely.

Once out of debt, your kids will need a good credit score to proceed with more positive financial transactions. Help them keep an eye on their credit report, and change it if there are any mistakes, by using an online credit score checker5.

Investing in Your Child’s Future

Even when your children are young, sharing your knowledge of money management and letting them have a go at investing themselves will make it second nature to them and give them real experience of managing funds.

A great way to teach them about their future pension funds is to match a small percentage of anything they manage to save. In mimicking 401(k) contributions like this, they will have a clear idea of how their money can grow for a comfortable retirement.

As you are browsing your stock portfolio, think about letting your kids choose a company that they’d like to invest in, perhaps a brand name that they like or a business with which they are familiar. For additional help in making a suitable choice, use a stock screener, an online tool that filters stocks to find a good fit depending on user-defined metrics. Once you’ve made your choice, make checking the fluctuations of stock an activity you share together. Your children will be excited to see stock rise for the first time, but after a dip, will come to learn about deferred gratification and appreciate growth in the longer-term. This will give them a real feel for the reality of financial investment.

As your children start looking to invest for themselves, robo advisors could ease their transition into often confusing and incomprehensible wealth management. For beginners with a simple situation, this technology can simplify processes and make them more understandable. Without human intervention, Robo advisors will give objective advice on investment possibilities by using algorithms to decide where best to place a client’s money in order to maximize their return. As well as being approachable and easy to use, most Robo advisors need no minimum investment and, although they aren’t free, some charge as little as $1 per month or between 0.15% and 0.50% of your portfolio on an annual basis6. These are some of the best robo advisors to consider.

Investing in Your Child’s Future

Even when your children are young, sharing your knowledge of money management and letting them have a go at investing themselves will make it second nature to them and give them real experience of managing funds.

A great way to teach them about their future pension funds is to match a small percentage of anything they manage to save. In mimicking 401(k) contributions like this, they will have a clear idea of how their money can grow for a comfortable retirement.

As you are browsing your stock portfolio, think about letting your kids choose a company that they’d like to invest in, perhaps a brand name that they like or a business with which they are familiar. For additional help in making a suitable choice, use a stock screener, an online tool that filters stocks to find a good fit depending on user-defined metrics. Once you’ve made your choice, make checking the fluctuations of stock an activity you share together. Your children will be excited to see stock rise for the first time, but after a dip, will come to learn about deferred gratification and appreciate growth in the longer-term. This will give them a real feel for the reality of financial investment.

As your children start looking to invest for themselves, robo advisors could ease their transition into often confusing and incomprehensible wealth management. For beginners with a simple situation, this technology can simplify processes and make them more understandable. Without human intervention, Robo advisors will give objective advice on investment possibilities by using algorithms to decide where best to place a client’s money in order to maximize their return. As well as being approachable and easy to use, most Robo advisors need no minimum investment and, although they aren’t free, some charge as little as $1 per month or between 0.15% and 0.50% of your portfolio on an annual basis6. If you want to build your own portfolio or pair it with a robo advisor, there are plenty of investing apps that have zero commissions and are completely free. These are some of the best investing apps to consider for your child.

Conclusion

As well as ensuring your children have a reliable pension when they are older, your own retirement plans could be more secure as you allow your kids to become wholly independent financially with a sound financial education behind them. Starting early in preparing your children for the world of finance not only protects them from everyday money worries, debt or even bankruptcy, but will allow them to enjoy making money from investment.

Having shared your financial knowledge and ensuring they are well educated in money matters at school, you can involve them in small money-making schemes such as earning money for chores,buying stock on their behalf or ways to make money online. These lessons and experiences will then allow them to make informed financial decisions and wise and profitable investments in the future.

By complementing your advice about money with an ever-increasing range of easily accessible financial technology, you can familiarize your children with digital tools that will enhance their knowledge, and enable them to quickly and easily get started with budgeting, saving and ultimately investing their carefully managed money. Given the rise of technology, it’s going to be the best way to position your child for financial success.