How to establish good financial habits; lessons from a six-year-old

Julia Zhu, a Financial Planner at Investec Wealth & Investment (UK), shares the lessons in responsible saving and investing we can learn from a six-year-old

With children around the UK recently returning to school, it takes me back to a time I was able to deliver an important financial lesson to some of the children in my life. As a financial planner, inspiring good spending and savings habits in young people is something I love to do. 

You’re never too young to learn the principles of investing

I was visiting my friends, a couple who have four children aged between 4 and 11 years old. Their daughter, Apphia, who was only six at the time, asked me what I do. I tried to make it simple by explaining that I help people to grow their money. I made an offer to do the same for each of the children: I could help them grow their pocket money by ‘investing’ with me.

Of the four children, only Apphia decided to invest her £2 pocket money. Naturally, as she was handing over her two coins, I warned her about investment risk: the possibility that you’ll get back less than you put in. I can start to feel her resistance of letting the coins go off her hand for a few seconds, but she did eventually let go!

A few months later, I returned to their house to visit and was able to show my aptitude for growing money by doubling Apphia’s investment to £4. She was delighted. The other three children showed their surprise but, to my disappointment, none were convinced to try it with their own pocket money (preferring to spend it instead).

Good money management can be more valuable than high income

At the time, Apphia’s mum made an interesting observation that, out of all her children, she was not surprised that only Apphia saw the appeal of investing. When I asked her why, she replied that Apphia has always been ‘the practical one’.

This struck a chord with me as, throughout my nine years as a financial planner, I have met many clients who are ‘the practical ones’. They may be people who don’t necessarily have a high income, yet have a good habit of continuously contributing to their pension and ISAs and saving and investing for their children’s future.

Conversely, I’ve also met people who may be in the high-income bracket, but have never formed a habit of saving, or constantly use credit cards and overdrafts. Some of them have even opted out of their employer’s pension scheme to have more disposable income. That is to say, there is no direct correlation between someone’s wealth and their ability to make the right financial choices.

Financial planning is more than growing money

Earlier this year, I met Apphia (now 8) again. She asked me once more, “What do you do, Julia?” and, as I began to answer, she stopped me and said, “I remember! You’re a money grower.” I couldn’t help but laugh, before trying to explain again in an age-appropriate way.

Although ‘money grower’ is my favourite job title by far, it’s not quite an accurate description of what I do. It’s much more holistic than that.

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Financial planning includes protection needs (in case of illness), retirement planning (so that you can have the choice to do whatever you enjoy most at your desired retirement age), estate planning (so your loved ones are not overpaying tax on their inheritance), and saving and investing for the future in tax-efficient wrappers.

In my opinion, life with or without the guidance of a financial planner is like making a car journey with or without a sat nav. Your financial planner can’t guarantee the journey will always be smooth, but we can ensure that you have everything in place to reach your desired destination.

Financial planning isn’t only for ‘the practical ones’

So, are you a ‘practical one’ like little Apphia, who is always planning for the future? Or do you need more active guidance to keep you on track towards your goals?

Either way, it can help to have a reassuring presence to point you in the right direction at every crossroad. I can’t promise to double your money in a few months – Apphia was particularly lucky there – but there are plenty of other ways a financial planner may be able to help.

This information does not constitute financial advice or a personal recommendation. Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future returns. You may not recover what you invest.