As children grow up, the questions they ask about money also change. Should we help them pay for their first car or lend them the money for it? Is your child moving to another city to study and do they need their own apartment? Do you want to pass on some of your wealth early? Where do we set limits, and how do we help with potential first investments?
Learning how to handle money is part of becoming an adult. Whereas young children are mainly concerned with how much pocket money they get, their financial questions become more complex as they get older. In this article, we explain what you need to remember when answering these questions, and how you can pass on what you know about finances.
Get an overview of your expenses together
Food, clothing and hobbies – for young adults, expenses can quickly add up. Sit down with your child and make a list of these costs together. Depending on the amount, you can decide whether your son or daughter is in a position to pay for their expenses themselves – for example, if he or she is in vocational training or has a part-time job and therefore a regular income.
Often, what you earn when you’re young is not enough. Young people often earn little or next to nothing, especially while still at school or university. Many parents pay their basic expenses during this period and the child can spend any “extra money” they earn on consumer items, their hobbies, or put it towards their first major purchase.
However, paying their basic expenses doesn’t mean you should pay for all of them. Decide together which expenses you will finance and which your daughter or son will be responsible for. This way you can set limits and your child learns to be responsible with money on their way to becoming adults.
Pay a monthly “wage” and stick to your guns
Once you’ve determined how much money your child needs, transfer all or some of the amount. We recommend monthly transfers as this way your child will learn to manage their money as if it were a monthly salary. But what do you do if your child suddenly asks for more money? Or wants their monthly transfer early? In most cases you’ll need to stand firm: stick to the monthly amount and don’t make any exceptions. This is the only way to ensure they will learn how to manage their own earnings in future.
Transfer costs to your child gradually
The first wage as an apprentice, from a part-time job or in their first job post-university – your child’s income will increase over time. When should they start paying the telephone bill? When should they pay the health insurance premium? The right time for teenagers and young adults to start paying these costs themselves is an individual decision. We recommend you start asking them to pay these gradually, keeping a constant eye on total expenses. If your child moves into their own apartment and sets up their own home, this is a good opportunity for them to start paying certain costs.
Practice dealing with major expenses
A new laptop, the latest sneakers or a long vacation: there’s no shortage of temptation for young adults. And if they have their own income, there’s a danger of overestimating their finances and getting into debt. That’s why it’s important for your son or daughter to learn to manage their money responsibly.
If a larger purchase is planned like their first car, this is a good opportunity to practice these skills, for example by giving them a loan. Agree with your child on a rate of interest and a specific term. This way, it’s clear at what intervals and with what installments your loan will be repaid.
Retirement planning, taxes and investments: pass on what you know
Young adults have their own bank accounts at an early age and often have their own credit card as they get older. But there’s a lot more to finance than just bank accounts and credit cards. You need to check where there are still gaps in financial knowledge and to answer unresolved questions. This includes financial issues such as insurance costs, taxes or occupational and private pensions. Last, but not least, we come to investments.
Discuss investments with your children early on
Dealing with investments also needs to be learned early on. Especially if you, as a parent, want to transfer certain assets to your children in advance, if your child has received a gift or inheritance, or has been gifted some stocks. Therefore, talk actively with your child about investing.
Clarify what their long-term financial goals are and what your child wants to save for. Our UBS experts will be happy to answer your questions and those of your child. There is little better incentive for your children to improve their financial literacy than to see their savings grow and understand how they can get more from their assets.